The aggregate surplus of FTSE 350 companies’ defined benefit (DB) pension schemes stood at £35bn at the end of December 2022, representing a £111bn improvement year-on-year improvement, according to Mercer’s Pensions Risk Survey.

The analysis revealed that the accounting surplus of FTSE 350 DB pension schemes increased “marginally” during December 2022, as the value of liabilities fell from £627bn at 30 November 2022 to £595bn, due to a rise in corporate bond yields.

However, asset values also fell from £658bn at the end of November 2022 to £630bn at the end of December 2022, which partially offset the liability falls.

Mercer principal, Matt Smith, highlighted the improved funding position as a "stark contrast" to the 76bn deficit recorded in December 2021, suggesting that pension scheme trustees may be looking to capitalise on this improvement in the year ahead.

"Many pension schemes have stayed resilient despite a year fraught with challenges and market volatility caused by the situation in Ukraine, the continuing impact of Covid-19 and Brexit, and market turbulence caused by the UK’s ‘mini-budget’," he continued.

"Now, schemes may find themselves closer to their end game and may be looking to capitalise on the improvement through 2023.

Smith also highlighted The Pensions Regulator’s consultation on the regulatory aspects of the new DB Pensions funding regime as "timely", as trustees and employers are "taking stock of what’s next: securing their end game and assessing newer options such as consolidators or pursuing run-off".

"We expect journey plans will now also be taking account of recent investment changes," he added, with Mercer suggesting that rising bond yields could present a "new normal", with schemes potentially increasing focus on locking in funding gains, whilst balancing liquidity and cashflow demands.

“Overall, 2022 demonstrated the value in robust planning and collaboration, which will be key aspects for trustees and employers in looking forward and agreeing realistic objectives.”

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