Government announcements strengthen case for endgame review as funding levels begin 2025 strongly

Latest results by LCP’s Pensions Explorer at 31st January 2025 show that the combined IAS19 pensions surplus for the UK pension schemes of FTSE100 companies is estimated to be around £70bn, up from £65bn as at 31st December 2024.

This position is around £25bn higher than the position at the start of 2024. The improvement in position over the year is a real positive for schemes and their sponsors, and comes on the back of strong aggregate year-end surplus positions every year since 2020.

The Government’s welcome announcements last week proposed new rules for DB pension scheme surplus to unlock “trapped” surplus assets for investment in the wider economy and to fuel economic growth. This announcement focused on surplus on a low dependency basis, rather than buy-out, meaning that the surplus available could be much larger than previously assessed and more pension schemes are already in a surplus position (according to latest statistics from the Pensions Regulator, 75% of schemes are in surplus on this measure, as opposed to around 50% on a buyout basis).

LCP’s Pensions Explorer estimates that FTSE100 UK pension schemes have an aggregate surplus of around £50bn on a low dependency basis. This represents significant value to sponsors and DB scheme members, and a real change in the DB pension scheme endgame landscape. With these potential changes on the horizon, we view that there is an opportunity for schemes and sponsors to get on the front foot, plan for the changes, and ensure they make the most of future flexibility in the rules to improve outcomes for all stakeholders.

January 2025 also saw Clara complete the transfer of members of the Wates Pension Fund, announced in December 2024. This is the third UK superfund transaction and the first with an active sponsor. The transaction paves the way for Clara, and superfunds more generally, to become a mainstream endgame option that pension schemes need to consider as part of their endgame strategy.

With reports also suggesting another bumper year for bulk annuities, we fully expect that the endgame market is heading for a busy 2025.

Jonathan Griffith, Partner and Head of Endgame Innovation at LCP, commented:

“Pension schemes begin 2025 in a strong position. Funding levels are up and new options are establishing themselves to support schemes in their chosen endgame strategy. Schemes should make the most of this opportunity and use the announcements as impetus to drive forward the pension strategy.”

Aaron Chaderton, Consultant, and part of the Endgame team at LCP, added:

“Ever since the 2023 Mansion House speech and the continuation of strong DB funding levels, it has felt like momentum has been building for schemes to run-on. The Treasury’s announcement last week has validated the excitement in the industry, and it is going to be extremely exciting to see how the market develops as a result."