New analysis shows that 5 companies account for half of the £40bn FTSE100 pension scheme surplus, representing ‘huge opportunity’

LCP’s latest annual analysis of the FTSE100 DB Pension Schemes shows that after years of being in deficit, the tide has turned and pension schemes have now been in surplus for the last five years. It also highlights that the five companies with the largest surpluses are HSBC, NatWest, BP, Barclays, and Lloyds Banking Group who collectively have over £20bn of the £40bn surplus. 

This means that now these schemes are an asset, not a liability on balance sheets and means they offer huge opportunities for investment. In addition, some companies’ (e.g. Sainsbury's, Associated British Foods) pensions surplus after any restrictions equates to over 8% of the market value of the company - illustrating the scale of the ultimate opportunity.

In LCP’s latest Accounting for Pensions report, the estimated aggregate surplus for the FTSE100’s UK DB pension schemes was £40bn as at year-end 2024. This corresponds to an average surplus of over £600m for every FTSE100 company with a UK DB pension scheme. It’s the fifth year in a row that the FTSE100 have shown an overall surplus and is a similar position to the £42bn aggregate surplus at year-end 2023.

UK funding regulations, significant cash from UK plc, and recent market movements have contributed to high funding levels and de-risked investment strategies in UK DB pension schemes. All this has meant that pensions have been protected.

According to LCP the health of these schemes gives companies 'new opportunities', whether it’s to finally secure their pensions and move on, or to exploit what are expected to be new freedoms from Government to use that surplus creatively, whether to pay pensions to today's workers, boost pensions for those in the DB scheme, invest more in the business or pay a return to shareholders.

Other key findings in the report include:

• When it comes to asset allocation, there has been a steady march into bonds over recent years, reducing investment risk and protecting benefits for scheme members. Over £200bn of FTSE100 UK pension scheme assets are tied up in bonds and cash. This corresponds to 9.5 times more being invested in bonds and cash than equities.
• There is a sizeable proportion of FTSE100 companies that have elected to not provide any disclosure narrative regarding the Virgin Media judgment, and few disclosed that they have completed an exhaustive investigation.
• 1 in 6 FTSE 100 companies with UK DB pension schemes undertook an insurance transaction of some kind in 2024.
• Around one in three FTSE100 CEOs are now receiving pension contributions in line with their employees – this is up from around one in seven in 2018.
• Scheme funding in company accounts has also improved as more sponsors now expect slower long-term improvements in life expectancy than in recent years. 

Luke Hothersall, partner at LCP, commented: “When schemes first went into surplus a few years ago this was written off as a flash in the pan event or similar to the fleeting surpluses of the 90’s. Now after five years it seems that surpluses could be here to stay, having survived the volatility of the last few years including the UK gilt crisis, war in Europe, a global pandemic and trade war uncertainties.”

Phil Cuddeford, partner at LCP, added: “Traditional risks associated with DB schemes are now largely mitigated.  There is an opportunity under current legislation for some to run-on over the medium to longer term, and use built up surpluses for better member and company outcomes.  

"Further, Government actions have the potential to introduce game changing flexibilities for sponsors to access DB surplus and provide value to members, as well as new investment opportunities. This will by no means be right for everyone, but all sponsors and schemes should be taking stock.”