Defined benefit pension scheme surplus 

In spite of the double-digit negative returns suffered by nearly all major asset classes during 2022, defined benefit pension scheme funding levels are likely to have improved significantly over the year, with many schemes now likely in surplus on some measures.

Funding levels have improved primarily due to significant rises in bond yields to levels not seen for almost a decade despite asset values being lower than at the start of 2022 - essentially, falls in scheme liability values exceed those of scheme asset values, leading to generally improved funding levels.

This is a welcome change for defined benefit pension scheme members, trustees and sponsors. However, while it is tempting for many sponsoring employers to consider their defined benefit problem “solved” and to reduce their level of engagement with schemes, we would caution against such an approach.

In fact, acting from the current position of strength could represent a golden opportunity for sponsors to assess where their scheme is on its journey plan and to engage with trustees to reduce the level of risk associated with their schemes.