Analysis of FTSE 350 companies' accounts underlines how defined benefit (DB) pension schemes no longer require large cash injections. Instead, many employers and scheme members are potentially able to benefit from significant surpluses.
Amongst FTSE 350 defined benefit sponsors with 31 December 2024 year-ends, pension scheme assets disclosed in company accounts exceeded liabilities by £30bn, giving an aggregate funding level of 109%. Both numbers were very similar to those recorded at the end of 2023, with both assets and liabilities falling slightly.
Almost two-thirds of companies in the analysis reported that their DB scheme was in surplus on an accounting basis. WTW estimates that around half may have surpluses on the "low dependency" basis; this is the funding test that the Government is "minded" to apply where trustees agree to make payments to an employer.
2024 was another buoyant year for de-risking transactions, and some employers will be looking to use strong funding positions to transfer pension obligations to insurers (where new providers have entered the bulk annuity market) or superfunds (which are being put on a proper legislative footing). However, others are reviewing their long-term objectives and exploring how the company and members could both receive value from the surpluses that schemes now enjoy.
Current funding positions are a far cry from the hefty deficits that companies used to report, and deficit contributions have dried up to a comparative trickle (£1.6bn in 2024 compared with £6.2bn in 2022).
Last year, WTW reported that DB sponsors had, for the first time, paid more into defined contribution pensions than into their DB schemes. By 2024, this ratio of DC to DB contributions had reached 2:1.
Overall, pension spending fell by 30% over two years, as the rise in defined contribution (DC) costs (fuelled by higher membership numbers and higher wages) did not keep pace with the fall in DB costs (where higher interest rates reduced the cost of financing new accrual at the same time as deficit contributions largely stopped).
Compared to 2023, companies recorded another fall in life expectancy at 65 for men but a rise amongst women. These changes were relatively small (0.2 years) but the average assumption for male life expectancy at 65 was 18 months lower in 2024 than it was in 2014.
The gap between male and female life expectancy should narrow again soon. 2025 accounts are likely to use the projection model recently published by the Continuous Mortality Investigation; this should increase life expectancy at retirement, especially for men.
Where deficits presented problems, surpluses present opportunities. The Pensions Regulator has said that trustees should start thinking about how they would respond to proposals from an employer on the use of surplus, and has suggested that sitting on a material surplus for a long time with no plan to use it might indicate a governance failure.
Policy changes should make it easier for employers and members to benefit from surpluses – both because the funding threshold for payments to an employer is expected to be lower than it is now and because trustees will be empowered to remove obstacles in their scheme rules. However, those changes are not expected to come into force until late 2027 and there are ways in which employers can look to benefit from surpluses in the meantime – such as using scheme assets to finance current pension costs where a DB plan has ongoing accrual or where DC is provided through the same trust.
For some employers, Phase 2 of the Government's pension review might ultimately lead to higher DC costs. However, many large employers already make contributions comfortably above statutory minimum levels, and changes to statutory requirements are not expected to be at all imminent.
| Title | File Type | File Size |
|---|---|---|
| FTSE 350 DB Pension Scheme Report 2025 | .8 MB |
