The reforms will support the Government's Plan for Change by boosting economic growth and securing the financial future of millions of UK savers.
- Funding levels in the Defined Benefit (DB) pension sector have hit a record high, with three in four now in surplus and deficit payments down by over £10 billion a year
- Increased resilience follows years of businesses creating security for members through building a larger surplus.
- New freedoms to safely release surplus funding will unlock investments and benefit savers as part of the Government's Plan for Change.
Working people, pension scheme members and businesses are set to benefit from record highs in pension scheme funding.
The majority of DB schemes are now running at a surplus which means the value of their assets exceed that of the promised pension benefits due to members.
Thanks to the forthcoming Pension Schemes Bill - trustees and employers will soon be able to safely release part of this surplus to boost investment and benefit scheme members.
Funding levels for DB pension schemes, sometimes known as "Final Salary" pensions, are current in their strongest ever financial position with the number of DB schemes sufficiently financed tripling since 2010.
Minister for Pensions, Torsten Bell, said:
The record funding levels for Defined Benefit pension schemes is excellent news for Britain's employers and workers.
Fast falling deficit payments offer employers a cashflow boost of over £10 billion a year, that can support higher wages and investment.
And growing scheme surpluses can also be used productively. Currently some trustees are held back from sharing the benefits of a surplus, but our plans will allow all schemes to safely do so, delivering greater investment across firms and benefits for savers.
In 2019, just 600 Defined Benefit schemes were financed sufficiently, meaning businesses could meet the costs associated with their schemes without dipping into operational budgets - by 2024 that figure had tripled to over 1,800.
Because of this robust financial position, the additional payments businesses have had to pay to plug pension deficits has fallen from £16 billion in 2010 to under £5 billion in 2024. This is delivering an immediate cashflow benefit to firms and should support higher levels of investment and wages.
The funding position of schemes in deficit has improved significantly, from a collective deficit of £500bn in 2019 to a deficit of just £140bn in 2024. Schemes running at a surplus have seen their collective surplus now rise to more than £160bn. Currently, many schemes cannot access their surplus - but the forthcoming Pension Schemes Bill will allow Pension trustees and the sponsoring employers to safely release some surplus to invest back into their businesses and unlock more money for pension scheme members. The upcoming changes will focus on member protection, and trustees will continue to be required to fulfil their duties towards scheme beneficiaries.
These changes form part of a package of reforms in the upcoming Pension Schemes Bill that will secure the financial future of millions of UK savers and drive long-term economic prosperity.
Additional Information
- The Department for Work and Pensions previously ran a public consultation on how pension scheme surpluses should be treated. The Government will publish a full response to the consultation in the coming weeks.
- Government previously announced plans to lift restrictions on how well-funded, occupational defined benefit pension funds that are performing well will be able to invest their surplus funds: Pension reforms to go further to unlock billions to drive growth and boost working peoples' pension pots - GOV.UK
- The Pensions Investment Review will see the creation of megafunds to drive more investment, boost pension pots and grow the economy through the Plan for Change: Pension megafunds could unlock £80 billion of investment as Chancellor takes radical action to drive economic growth - GOV.UK
- On a buy-out funding basis, the deficit of schemes in a deficit is currently estimated at £140bn ( Purple Book ). When looking at the Low Dependency measure of funding, there is a surplus (for schemes in surplus) of over £160bn ( TPR ).
- Latest funding positions can be found on The Pension Regulator's website:
Estimated DB scheme universe funding splits and assets under management | The Pensions Regulator
- Trends in the funding position can be found in the PPF's Purple Book Pension Protection Fund
- Trends in Deficit Reduction Contributions can be found on ONS, with latest figure adjusted to reflect full-year estimate.
PEN: INC: Employers special contributions: Defined benefit - Office for National Statistics
Funded occupational pension schemes in the UK - Office for National Statistics
