Commenting on TPR’s annual DB landscape report published today, Laura McLaren, Head of DB Actuarial Consulting, Hymans Robertson, said:

“The Pensions Regulator’s latest annual report on defined benefit (DB) occupational pension schemes as at 31 March 2023, underscores that the landscape has changed rapidly over the last couple of years.

“The statistics show 73% of all DB pension schemes are estimated to be in surplus on a funding basis, compared with just 50% the year before. The average scheme funding level is estimated to be up by 13.5% percentage points to 114.5% in just 12 months, whilst the total deficit (of schemes in deficit) has more than halved, reducing from £63 billion to £28 billion.

“Driven by material increases in government bond yields and strong asset returns, the market has been alive to this seismic shift. Nevertheless, it makes for interesting reading with so much market and regulatory change in the pipeline and an election on the horizon.

“Under the Mansion House reforms we anticipate a consultation landing shortly on how schemes might generate and use surpluses investing more in productive assets. With the statistics confirming only a minority - less than 4% - of DB schemes remain open to new members, now is the time for policymakers to look properly at longer term pensions strategy. Ensuring the regulatory environment balances keeping past benefits secure with offering good quality pensions to current workers.

“In the meantime, TPR and DWP are currently wrangling to make sure the final regulations and funding code are fit for purpose and proportionate, given that there is now a very small, and reducing, number of poorly funded schemes.

“And the changes continue to be transformational for the risk transfer market. With a growing proportion of schemes having sufficient assets to buy out their liabilities with insurance companies, 2024 is already looking like it has the potential to be a record year for deals.”