Defined benefit (DB) funding levels have hit a record high, with three in four DB schemes now in surplus and deficit payments down by over £10bn a year, analysis from the Department for Work and Pensions (DWP) have revealed.

The DWP highlighted industry data showing that the funding levels for DB pension schemes are currently at their strongest ever financial position, with the number of DB schemes sufficiently financed tripling since 2010.

Indeed, the DWP pointed out that while just 600 DB schemes were financed sufficiently in 2019, meaning businesses could meet the costs associated with their schemes without dipping into operational budgets, by 2024 that figure had tripled to over 1,800.

This has had a knock-on effect on the additional payments businesses have had to pay to plug pension deficits, which have fallen from £16bn in 2010 to under £5bn in 2024, delivering an immediate cashflow benefit to firms that could support higher levels of investment and wages.

And further changes could also unlock investment in the UK economy as a result of these funding improvements, as the government previously announced plans to unlock surplus funds in UK private-sector DB pension schemes, subject to agreement from scheme trustees.

The recent funding improvements mean that these changes could unlock more than £160bn in investment for the UK, as data from The Pensions Regulator (TPR) showed that schemes running at a surplus have seen their collective surplus now rise to more than £160bn.

These changes form part of a package of reforms in the upcoming Pension Schemes Bill which is expected to be shared before the summer recess.

Industry experts previously welcomed the government's plans to change DB surplus rules to provide more flexibility, although they also stressed the need for the government to ensure that the right guardrails are in place.

However, the DWP confirmed today (21 May) that the upcoming changes will focus on member protection, and trustees will continue to be required to fulfil their duties towards scheme beneficiaries.

Commenting on the update, Pensions Minister, Torsten Bell, said: "The record funding levels for DB pension schemes is excellent news for Britain’s employers and workers.

“Fast falling deficit payments offer employers a cashflow boost of over £10 billion a year, that can support higher wages and investment.

“And growing scheme surpluses can also be used productively. Currently some trustees are held back from sharing the benefits of a surplus, but our plans will allow all schemes to safely do so, delivering greater investment across firms and benefits for savers."

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