FTSE 350 has achieved a record funding surplus, increasing from £51bn at the end of April 2023 to £69bn by the end of May 2023.
According to Mercer’s pensions risk survey data analysis, this is due to an uptick in bond yields and a decrease in market-implied inflation.
The present value of liabilities declined from £590bn at the end of April 2023 to £550bn at the end of May 2023. A decline in asset values from £641bn at the end of April to £619bn at the end of May 2023 largely offset the increase in liabilities.
Mercer principal John Gething says: “This is leading to a lot of interest from companies and trustees in exploring the range of end game options. They are seeing the expected level of profit and value being passed to an insurer if they secure outcomes externally and are considering alternative, potentially more efficient options.”
Gething adds: “For some schemes, these may be achievable objectives but the way to do it will vary from case to case and be subject to scheme specifics and legal advice – for the simplest cases, it could be as straightforward as a framework agreement between the company and trustees.
“This isn’t a new idea, but is becoming increasingly relevant as funding levels have improved.”
“Even the Pensions Regulator is referring to running-on as a suitable option for some in its Annual Statement,” he added.
“For the first time in a very long time, some legacy DB pension plans have the potential to become a source of value and competitive advantage for companies.”