Around half of FTSE350 companies with defined benefit (DB) schemes could have surpluses on a “low dependency” basis, research from WTW has found.

This comes after the government said it was “minded” to permit trustees to make payments to an employer where schemes would remain fully funded against their “low dependency” liabilities.

According to the analysis, the aggregate funding level of FTSE350 DB scheme sponsors was 109 per cent, with 64 per cent of companies reporting a surplus.

Meanwhile, aggregate assets exceeded liabilities by around £30bn, similar to the previous year’s £29bn.

The firm said that this large number of schemes with a surplus underlined how DB pension schemes no longer require large cash injections and instead, many employers and scheme members are potentially able to benefit from “significant” surpluses.

WTW head of corporate pension consulting, Bina Mistry, explained that the days of DB schemes being a "major call on company resources look to be behind us".

“Deficit contributions have dried up to a comparative trickle, risks have been hedged, and attention is shifting to the healthy surpluses that many schemes now enjoy,” Mistry said.

“For some employers, the priority will be to use stronger funding positions to get liabilities off their balance sheets as soon as they can, but others are considering the opportunities for both members and sponsors to benefit from running the scheme on for longer.”

Mistry also noted that policy changes should make it easier for surpluses to be shared between the employer and scheme members.

However, she explained that these changes are not expected to be in force for more than two years and in the meantime, companies can explore using surplus in other ways.

She offers the example of companies meeting pension costs, either in respect of DB accrual or defined contribution (DC) contributions for those in the same trust, for current employees, or to cover scheme expenses, which she suggested some were already doing.

“The Pensions Regulator has told trustees to think about how they would respond to proposals from the employer for releasing surplus funds and has suggested that sitting on a material surplus for a long time with no plan to use it may indicate poor governance,” Mistry said.

“Where an employer wants to sever its link to a pension scheme that cannot afford to buy annuities for all its members, the proposed legislative regime for commercial superfunds could offer a faster exit route that also improves the likelihood of members receiving full benefits.”

The research also showed that DB scheme sponsors paid twice as much into DC plans as they paid into DB schemes in 2024, research from WTW has found.

This follows the previous year, 2023, when, for the first time, DC contributions exceeded DB contributions for DB sponsors.

Meanwhile, despite companies’ spending on DC contributions rising by 10 per cent year-on-year, overall pension spending has fallen by around 30 per cent over a two-year period.

WTW credited the spending rise for DC contributions to pay growth and more employees being in DC schemes, rather than by increased contribution rates.

In light of this, the firm stated that the rise in DC contributions has not matched the fall in DB costs as deficit contributions have decreased and as higher interest rates have reduced the cost of new accruals.

However, Mistry said that despite the government’s review of pensions adequacy, expected to launch “imminently”, may ultimately lead to higher contributions in some workplaces, it's another waiting game as she noted “it is likely to be many years before anything is implemented”.

“Many large employers already pay much more into employees’ DC schemes than the minimum amounts required by law,” she said.

“Where this is not the case, employers and individuals will have to take the initiative themselves if contributions are to rise before then.”

The analysis also showed that deficit contributions have fallen from £6.6bn in 2022 to £1.6bn in 2024.

In addition to this, the research indicated that the assumed male life expectancy at 65 continued to fall from 86.7 in 2023 to 86.5 in 2024 and was 18 months lower in 2024 than in 2014.

Meanwhile, female life expectancy rose year-on-year from 88.5 in 2023 to 88.7 in 2024.

However, WTW said it expects the gap between male and female life expectancy to narrow again soon, as the 2025 accounts are likely to use a different projection model that should increase life expectancy at retirement, especially for men.

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