More than two thirds (68 per cent) of defined benefit (DB) pension schemes with fewer than 100 members have buyout funding ratios of over 100 per cent, up from 18 per cent the year before, analysis from Broadstone has found.

This suggests that around 1,275 schemes could be ready to buy out in the immediate future, which Broadstone highlighted as evidence of just how rapidly the buyout pipeline has congested over the past year.

With nearly 1,000 smaller schemes now in a stronger position to begin engaging with the insurance market, Broadstone head of pensions administration, Gavin Giles, warned that preparation will only grow in importance.

“The number of smaller schemes who now find themselves in a position where they can realistically explore securing member benefits through buyout has soared in the past 12 months,” he continued.

“This is creating unprecedented demand in the insurance market as schemes battle to attract and engage insurers. For those at the smaller end of the market, this challenge is compounded by the fact that insurers are likely to focus on the larger, more commercially attractive transactions.”

Giles suggested that administration is set to be especially vital for smaller schemes looking to progress to buyout over the next 12 months, arguing that the most important action that small schemes can take is engage specialist support to help sort their data and governance.

"Offering a well-prepared scheme is key as it will show the scheme is committed to the process and very importantly for insurers, limit the amount of their resource it is likely to take up," he continued.

However, he clarified that insurers will naturally have to focus on this smaller segment soon, suggesting that there will be a natural re-alignment of the market as insurers snap up the largest transactions.

"With a deal-making superfund now operating in the market and a proposed public sector consolidator focused on the smaller segment, schemes must keep their foot down now to achieve endgame," he added.

Broadstone's analysis was based on data from the Pension Protection Fund's 2023 Purple Book, which showed that there has been a significant improvement in the net funding position of DB schemes in the UK, amid a slight decline in asset allocations to bonds and equities.

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