Surplus levels unchanged as sustained push towards schemes running-on – LCP
Pensions & benefits Endgame strategy and journey planning DB pensions DB funding code
Latest results by LCP’s Pensions Explorer at 31st July 2024 show that the combined IAS19 pensions surplus for the UK pension schemes of FTSE100 companies stands at around £60bn – broadly unchanged from the position at 30th June.
Over July, there was a change in UK government but LCP’s analysis shows that the aggregate IAS19 pension funding levels moved by less than 0.1% over the day before and after the election. This reflects that the markets had more than likely already priced in a Labour majority.
The new Government has stated a focus on growth and investment in the UK economy. The new DB funding code released this week is potentially at odds with this. Therefore, if the Government wants to align pension schemes to help them reach their goal, they need to make it easier for schemes to run on and permit easier use of surplus. Using the surplus to provide other benefits, such as DC contributions or improvements to DB member benefits, as well as for companies to receive some or all of the funds back, could be a win for members, for companies, and for the wider economy by driving economic growth.
Following new TPR guidance issued last week, the extraction of surplus is now possible for superfunds. It is natural for new legislation to extend this power to pension schemes. If not, we may see well-funded schemes defaulting to insurance rather than run-on and other options that can help deliver UK growth and improved stakeholder outcomes.
Jonathan Griffith, Partner and Head of Endgame Innovation at LCP commented: “It has been a busy few weeks with a change in Government, the publication of the DB funding code, and new superfund guidance. Throughout this, funding levels have remained strong, and we have seen a sustained push from schemes taking action and building robust run-on strategies.”
Aaron Chaderton, Consultant, and part of the Endgame team at LCP, added: “A new government can bring uncertainty over policy. Initial signs suggest a shift to promote greater long-term investment and with it improved outcomes for members - this is really encouraging for schemes aiming to run-on.”
Harry Fitchet, Analyst, and part of the Endgame team at LCP, added: “The rhetoric from the new Labour government highlights the potential to use pension schemes as a vehicle to drive growth in the UK. Given the size, and potential rewards, pension schemes running-on have a big part to play.”