Thirty per cent of defined benefit pension schemes are now substantially above 100 per cent funded, Aon Hewitt has said.

Further, 42 per cent of them are around 100 per cent funded on a best estimate basis. When viewed on an accounting basis, around 25 per cent of FTSE 350 schemes are now over 100 per cent funded.

Partner Paul McGlone said “pension schemes are clearly not out of the woods but as they seek stability they are doing so from a position which is different to where they were just a few years ago”.

“Funding levels have improved substantially and you can make a case that many schemes now have enough money without further deficit contributions being made. From both cash and accounting perspectives, many sponsoring companies are therefore likely to be pushing back on any demands for further deficit contributions into a scheme.”

Aon Hewitt argued schemes should divert sponsor contributions into alternative financing strategies as a result of improved funding levels.

“As they become less keen on paying in cash we are already starting to see more companies considering alternative ways of providing that security, including escrow, charges over assets, letters of credit, surety bonds and other mechanisms,” partner Lynda Whitney said.

“The latest Aon Hewitt survey showed that 71 per cent of large schemes with liabilities in excess of £1bn and 27 per cent of schemes with liabilities under £100 million already have some form of alternative financing and we expect these proportions to grow. As ever with pensions, there is no one-size-fits-all but we believe alternative financing solutions are an option that every DB pension scheme should be considering as part of their strategy to reach pensions stability.”

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