More than half of pension schemes are now fully funded on a buy-out basis, according to Aon’s latest In-Depth Pension Scheme Funding analysis.
The analysis found that 74 per cent of schemes are in surplus on a technical provisions basis, the highest proportion since the current funding regime began in 2005.
Funding levels have continued to improve since schemes carried out their latest valuations, despite many starting from historically high funding levels.
Aon found that 64 per cent of schemes have a long-term aim to continue running their scheme while reducing risks. A further 39 per cent are aiming to become fully funded before moving towards buy-out, although most are not committed to securing a buy-out.
Of the schemes using a low-dependency funding target, 74 per cent aim to have enough assets to cover 100 per cent of their liabilities. Some 59 per cent use a discount rate 0.5 percentage points above gilt yields when setting this target.
The average recovery period for schemes still in deficit was 4.3 years, 0.2 years longer than three years ago. Recovery periods have stabilised in recent years after falling for much of the previous period.
Aon also found that 92 per cent of schemes use a third-party specialist to assess their employer covenant.
The average difference between RPI and CPI assumptions was 0.85 percentage points a year before 2030 and 0.06 percentage points after 2030, reflecting the planned change to the way RPI is calculated from 2030.
According to Aon, changes to pension rules are expected to make it easier for schemes to share surplus funds with employers and members. Aon said this could encourage more DB schemes to run on, invest in productive assets and generate additional returns.
