Two-thirds of UK defined benefit (DB) and hybrid pension funds reported a surplus in the latest funding analysis, up from 39% three years earlier, according to The Pensions Regulator (TPR).
TPR’s 2026 analysis compares schemes in tranche 19 – with effective valuation dates from 22 September 2023 through 21 September 2024, inclusive – with the same cohort of pension funds at their previous valuation in tranche 16. The proportion reporting a surplus increased from 39% to 67%, while funding levels improved across all scheme size categories.
The latest figures also show a substantial reduction in recovery-plan requirements. The average recovery plan has shortened to four years from 5.7 years in tranche 16, while the median plan length has fallen from five years to 3.2 years.
The median recovery-plan end date is now 2027.
Jon Forsyth, partner and head of pensions development at LCP, said the improvement would not come as a surprise to most of the industry.
“This latest TPR analysis shows continued improvement in scheme funding positions, which will not be news to most of the industry. Next year’s analysis will be the first in the new funding regime and will shed more light on how schemes are shaping up against those new requirements.
“But in the meantime there is lots for schemes to be thinking about now that they find themselves better funded – not least the growing number of endgame options, and the new surplus sharing regime coming in from April next year which could [offer] the chance to share some of this improvement in funding between sponsors and members,” he noted.
The improvement is evident across schemes of different sizes, with TPR reporting that funding levels increased across all size categories. The smallest schemes, those with fewer than 100 members, recorded the largest median assets-to-technical-provisions liabilities ratio, although they also showed the greatest variation in funding levels.
More options
The stronger funding position is giving trustees more options around their long-term objectives, according to industry commentators.
Maurice Titley, commercial director of data and dashboards at Lumera, said: “The material improvement in DB funding levels in recent years is a significant shift for the market, with many more schemes of all sizes now in a position to consider their long-term objectives from a position of strength. Trustees have also benefitted from a growing array of endgame options with the emergence of superfunds, increased competition in the insurance market and new flexibilities on leveraging surpluses.”
He added: “As schemes consider buy-out, run-on, surplus release and other long-term objectives, the quality of their data and administration will become increasingly important. Strong funding alone does not guarantee that a scheme is operationally ready to take advantage of these opportunities.”
Titley noted that trustees need to be confident that their underlying data, records and processes are “accurate and robust”, enabling them to execute their chosen strategy efficiently while continuing to safeguard member benefits.
Nigel Jones, executive director pensions at Broadstone, said the improvement was giving trustees “far greater choice” over their long-term strategy.
“For schemes still carrying a deficit, the priority should be to use that improved position carefully rather than simply assume the job is done. Trustees need to consider how much risk remains appropriate, whether contribution plans are still fit for purpose and how quickly they can move towards their longer-term objective without putting unnecessary pressure on the sponsor,” he explained.
“The stronger funding backdrop gives schemes much more room to plan proactively, but the final few years of a recovery plan still require disciplined funding, investment and covenant management if trustees are to convert that progress into a secure endgame,” he continued.
The latest analysis covers valuations in the period before the new DB funding regime took effect. TPR said its next analysis will provide greater insight into how schemes are responding to the new requirements.
