Our annual review of the FTSE350 defined benefit (DB) pension schemes shows a dramatic improvement in funding levels, with the aggregate deficit falling from £62bn in 2016 to £35bn at the end of June 2018.

While this is undoubtedly good news for DB pension scheme sponsors, a huge amount of risk remains on the table – our analysis suggests that a 0.5% fall in bond yields would push the deficit back to 2016 levels.  

Should companies be taking advantage of this funding improvement to further reduce their DB pension scheme risk?

Our report highlights some of the opportunities available for companies to do this:

  • Transfer values – £42bn was paid out of FTSE350 DB pension schemes in 2017, with around £14bn of this being a result of transfers to Defined Contribution (DC) schemes. A large number of companies are taking advantage of this trend to reduce both risk and cost.
  • Investment risk – DB pension scheme investments expose companies to a large amount of risk. Companies should ensure that they are proactive in engaging with the pension trustees in this area, and should be aware of the options available to reduce risk without materially impacting on the expected investment return.
  • Buyout transaction – 2017 was a busy year for insurance transactions, and with pricing at an attractive level and funding levels improving, some companies may now be in a position to completely remove a significant proportion of their DB pension risk.