UK pension scheme funding remains strong despite equity market shocks - LCP

Latest results by LCP’s Pensions Explorer at 30th April 2025 show that the combined IAS19 funding level for the UK pension schemes of FTSE100 companies remains high at around 118%, corresponding to a surplus of over £50bn. Further publications of FTSE100 corporate 2024 year-end results continue to show strong pension funding levels.

Equity markets experienced notable volatility over April due to uncertainty around international trade, following proposed US tariffs. However, following years of de-risking, assets are now largely invested in low-risk liability-matching portfolios, with less than 8% of total UK DB pension assets across the FTSE100 allocated to equities. Whilst this approach has helped schemes mitigate downside risk and volatility to preserve funding levels, there is a balance to consider potential missed upside too, particularly if choosing to run the scheme on for a period of time.

The Pensions Regulator also issued their Annual Funding Statement in April. With three quarters of all schemes now in surplus on a low-risk basis, this statement encouraged more focus on endgame planning. Interestingly, the Regulator commented that schemes should look to include an intention to buyout over the long-term in their funding and investment strategy (as their “long-term objective”). However, whilst there may be sufficient flexibility to do this, given many sponsors could have concerns around the accounting implications of doing so and many schemes may not have a plan to buyout over the long-term, it remains to be seen whether many schemes will actually do so in practice.