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Highlights
Around half of FTSE 350 DB scheme sponsors reported low dependency surpluses
DC contributions now outweigh DB contributions across FTSE 350 companies
Pension liabilities continue to decline due to interest rate changes and lower deficit costs
The FTSE 350 companies with defined benefit (DB) pension schemes have shown a marked shift in their pension funding landscape, with a significant portion now reporting surpluses on a low dependency basis. Recent findings indicate that a growing number of these companies are positioned well under the new scheme funding regime, a framework built on more conservative financial assumptions.
The trend was highlighted by the performance of FTSE 350 companies with year-end reporting dates of December. The shows a clear movement in favour of surpluses in DB funding, with aggregate assets surpassing liabilities. This shift indicates a transformation in pension management strategies, as companies adjust to reduced deficits and evolving regulatory guidance.
Shifting Focus to Defined Contribution Schemes
Defined contribution (DC) schemes have now taken centre stage in pension expenditure. Contributions into DC schemes from FTSE 350 companies have exceeded those into DB schemes. The transition reflects both an increase in DC scheme membership and the influence of wage dynamics. With many firms reducing deficit contributions due to improved funding levels and cost-saving measures, DB-related spending has fallen.
This reallocation of pension budgets points to a fundamental change in how large UK-listed firms structure their employee retirement benefits. The shift is influenced not only by accounting factors but also by broader demographic and financial developments.
Funding Levels Support Surplus Management
The government’s stance on surplus distribution is also reshaping the pension narrative. There is growing support for allowing scheme surpluses to be shared with sponsoring employers, provided that funding levels remain stable against low dependency liabilities. This possibility has encouraged some companies to explore ways to utilise surplus funds, including covering current pension costs or meeting administrative expenses.
The consultation process has opened the door to new governance discussions, with pension trustees being advised to plan for scenarios where employers seek to access these funds. The emphasis is now on maintaining transparency and responsible decision-making, especially when a scheme significant surpluses without a defined usage plan.
Longevity Trends Influence Scheme Valuations
Another key factor in pension funding outlooks is the change in life expectancy assumptions. Recent data indicates a slight decline in male life expectancy at retirement age, while female expectancy has risen modestly. Over the longer term, projections a narrowing of the gender gap, especially as new actuarial models are introduced in future reporting periods.
The ongoing adjustments in life expectancy have an impact on how liabilities are measured, influencing the actuarial assumptions that underpin both DB scheme valuations and company balance sheets. These demographic shifts contribute to a more refined understanding of long-term pension commitments across the FTSE 350 landscape.
As companies continue to evolve their approach to pension funding, the emphasis is moving from deficit reduction to surplus management and long-term stability. The emergence of low dependency surpluses signals a new chapter in how defined benefit schemes are viewed within the UK’s corporate financial environment.
