Defined benefit (DB) pensions have moved from being a “threat” to an “opportunity” for UK corporates, according to LCP’s latest Corporate Report Autumn 2025, which described workplace pensions as “a bright star in a dark sky” for corporate Britain.

The consultancy said that improved funding levels, legislative reforms and a growing menu of endgame options meant DB schemes were now seen as strategic assets rather than liabilities.

Indeed, the report found that around 80 per cent of FTSE 100 sponsors reported IAS 19 surpluses, with aggregate surpluses estimated at around £40bn, compared with deficits seen for much of the past two decades.

LCP said this new era of sustained surpluses created both opportunity and complexity, as
sponsors must now navigate issues around ownership, accounting treatment, and the balance between member security and corporate value creation.

“DB pensions are bright stars in a dark sky for corporate Britain,” said LCP partner and head of corporate consulting, Gordon Watchorn.

“Sponsors who act now to align strategy, governance and accounting will be best placed to turn pension surpluses into long-term corporate value,” he added.

The report also noted that the Pensions Schemes Bill, currently progressing through Parliament, would relax barriers to refunding surpluses and create a legal foundation for DB superfunds.

LCP expects the legislation to come into force by 2027, with The Pensions Regulator (TPR) already encouraging schemes to formalise policies on surplus use as part of their endgame planning.

LCP’s DB Pensions Priorities 2025 survey, cited in the report, showed that over 50 per cent of schemes were reviewing their surplus strategies, rising to 80 per cent among schemes over £5bn in size.

In addition, the consultancy found that the market for risk settlement remained buoyant, with 2025 deals expected to exceed £40bn and total buy-ins projected at between £350bn and £550bn over the next decade.

The arrival of new entrants, including global investors such as Athora, Brookfield, and Blackstone, has further boosted confidence and capacity in the UK bulk annuity market.

Indeed, over 65 per cent of schemes with assets above £500m are considering running on for a period rather than heading straight to insurance, as stronger funding and new surplus-sharing flexibilities make long-term run-on strategies more viable.

The report also highlighted the rise of alternative endgame options, such as DB superfunds, which offer potentially cheaper routes than buy-out.

With TPT confirming plans to launch a new superfund in 2026, LCP said interest in this market is expected to accelerate.

On the investment front, LCP noted that new rules around surplus-sharing mean investment strategy now drives not just risk but return.

Its modelling showed that schemes willing to target gilts +1.25-1.75 per cent per annum could significantly enhance net present value outcomes, with the potential to improve returns without meaningfully increasing downside risk.

The firm also pointed to the CMI_2024 mortality model as marking a “turning point” for longevity assumptions, with life expectancy at age 65 rising by around 3 months for males and 2 weeks for females in the core model - the first increase in more than a decade.

However, LCP’s medical experts said there were reasons to temper these assumptions, with muted mortality improvements likely among older age groups.

Reflecting on the report’s findings, LCP partner, Phil Cuddeford, said: “In a landscape transformed by stronger funding and new freedoms, sponsors have the chance not just to respond - but to lead.

“By driving the conversation, they can shape pension strategies to reflect their objectives, unlock long-term business success and create better options for members,” he argued.

The report concluded that the “winners” in this new environment would be those who proactively tackle barriers such as data quality, trustee alignment, and governance readiness, positioning themselves to take advantage of the opportunities ahead once the new legislation takes effect.

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