More than two-thirds of defined benefit (DB) schemes in The Pensions Regulator’s (TPR) latest funding analysis are now in surplus, almost double the proportion recorded for the same cohort three years earlier.

TPR’s latest Occupational DB scheme funding analysis found that 67 per cent of tranche 19 schemes reported a surplus, compared with 39 per cent for tranche 16, highlighting the significant improvement in scheme funding positions over the past three years.

The improvement has also been reflected in shorter recovery plans among schemes that remain in deficit.

The average recovery plan length has fallen to four years, compared with 5.7 years for tranche 16, while the median has reduced from five years to 3.2 years.

The median recovery plan end date for tranche 19 schemes is now 2027.

Broadstone executive director pensions, Nigel Jones, commented on the findings: "The marked improvement in DB funding levels over the past three years is giving trustees of schemes of all sizes far greater choice over their long-term strategy, with nearly twice as many schemes now reporting a surplus.

“The shortening of recovery plans is another clear sign of that progress and is particularly encouraging for those schemes that remain in deficit.”

Jones noted that the reduction in both average and median recovery plan lengths suggested many trustees were now “within much closer reach of full funding” than they had been three years ago.

However, he warned schemes that remained in deficit against assuming that stronger funding meant the job was complete.

“For schemes still carrying a deficit, the priority should be to use that improved position carefully rather than simply assume the job is done,” he continued.

“Trustees need to consider how much risk remains appropriate, whether contribution plans are still fit for purpose and how quickly they can move towards their longer-term objective without putting unnecessary pressure on the sponsor.”

The stronger funding environment comes as more DB schemes consider a wider range of endgame options, including insurance transactions, run-on and alternative consolidation arrangements.

Jones acknowledged that improved funding was giving trustees greater scope to plan proactively, although disciplined management would remain important as schemes approached their long-term targets.

“The final few years of a recovery plan still require disciplined funding, investment and covenant management if trustees are to convert that progress into a secure endgame,” he added.

Also commenting on the latest figures, LCP partner and head of pensions development, Jon Forsyth, said: "This latest analysis shows continued improvement in scheme funding positions, which will not be news to most of the industry.

"Next year's analysis will be the first in the new funding regime and will shed more light on how schemes are shaping up against those new requirements.

"But in the meantime, there is lots for schemes to be thinking about now that they find themselves better funded - not least the growing number of endgame options, and the new surplus sharing regime coming in from April next year which could offer the chance to share some of this improvement in funding between sponsors and members."

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