Skip to main content

Your browser is out of date, and unable to use many of the features of this website

Please upgrade your browser.


This website requires cookies. Your browser currently has cookies disabled.

Annual Funding Statement 2024

This statement is for trustees and sponsoring employers of occupational defined benefit (DB) pension schemes. It is particularly relevant to schemes with valuation dates between 22 September 2023 and 21 September 2024 (known as Tranche 19, or T19 schemes).

Funding and investment allocations may have been impacted given the significant changes over the last couple of years due to changes in market conditions. All trustees should understand the magnitude of the impact on their schemes and, where significant, trustees should review their funding and investment strategies even if they don’t have a T19 valuation. This statement is also relevant for those schemes.

Published: 24 April 2024

Key messages

  • Most schemes have seen material improvements in funding levels. Half of schemes are expected to have exceeded their estimated buy-out funding levels. This step change in position gives trustees and employers an opportunity to reassess their long-term targets and consider run-on, consolidator or insurance options.
  • Where funding levels have improved significantly, trustees should consider whether continuing with the existing strategy and level of risk is in the best financial interests of members. If not, they should aim to redirect some of the funding level improvements towards a funding and investment strategy that is aligned with their future plans for the scheme. Transition options could range from moving to a long-term target with the potential to generate additional surplus to benefit members and employers by running on, to entering into a consolidator or insurance arrangement.
  • A sizable minority of schemes are expected to still be in deficit on a technical provisions basis. Trustees of these schemes will need to continue to focus on achieving a recovery plan that is as short as reasonable, based on the employer’s affordability. They will also need to pay careful attention to the employer covenant, given their higher reliance on it.


Our analysis indicates that the aggregate funding level for all T19 schemes was ahead of that expected three years previously, with less than 25% of schemes with an expected deficit on the technical provisions basis and around 50% with a surplus on a buy-out basis. However, the position for individual schemes will vary greatly compared with aggregate estimates.

We will regulate all T19 valuations according to the requirements of the legislation and guidance in force at the effective date of the valuation. The current funding regime (as set out in Part 3 of the Pensions Act 2004 and our current DB funding code and guidance) alone applies. Additionally, new legislation and our revised DB code are expected to apply to valuations with effective dates from 22 September 2024.

When regulating T19 valuations, we will continue to risk assess them in a proportionate way. It is therefore important that trustees and employers are fully aware of our expectations in this statement and in our wider guidance. Trustees and employers should be fully prepared to justify and explain their approach in their valuations with supporting evidence.

Over the summer, we will publish our revised DB code, along with supporting documentation and a consultation on updated covenant guidance. It would be good practice for trustees to consider the steps they can take now to align (even if broadly) with the funding code when it is published, and to avoid having to make significant changes at the next valuation to be compliant.

General considerations for schemes currently undertaking a valuation

DB schemes have seen significant changes over the last couple of years and, for many, the improvement in funding levels has been a significant turning point. Long-term objectives set in an era of low interest rates, and their associated funding and investment strategies, now need to be reviewed.

Overall reliance on the employer covenant will have reduced, and contingent assets such as guarantees, escrow accounts, and asset-backed funding arrangements expressed in nominal amounts may also now look more favourable.

We know schemes are increasingly facing calls from employers to reduce or suspend contributions, as well as from members for discretionary increases, given that pension increases may not have kept pace with inflation. When considering such requests, trustees should look at their overall position, the resilience of their investment strategy to future financial market movements, and the level of covenant support. Trustees should be aware of members who would benefit from any decision to award a discretionary increase, and whether their scheme has a history of paying discretionary increases.

Open schemes may have also seen a material reduction in the estimated cost of providing future service benefits and, given their typical immaturity, many have seen larger movements in funding levels. Trustees of these schemes are likely to be more focused on technical provisions compared to long-term targets, assuming the scheme will remain open to future accrual. Therefore, they may be maintaining greater covenant reliance for a longer period than their closed counterparts. They may also be considering requests to use surplus to subsidise future accrual.

While most trustees are likely to be approaching T19 valuations from a relatively healthy funding position, they should recognise the economic uncertainty that will continue to impact investments and the employer covenant in different ways. This includes uncertainty over the future path of interest and inflation rates (impacting both the scheme and employer), as well as a high level of geopolitical instability.

The employer covenant supporting pension schemes remains an integral element to consider when assessing the level of supportable risk, especially where schemes have a poor funding level or a weaker covenant. If a scheme is still materially reliant on covenant, trustees need to keep re-financing risks, covenant leakage, and fair treatment at the forefront of their minds.

The potential impacts from climate change and wider sustainability issues, including nature loss, have become an area of increasing concern for trustees and companies in recent years. These issues have the potential to impact investments, liabilities and the resilience of their funding strategies. They can also materially impact the employer covenant through impacts on their business activities, operations, supply chains and, in some cases, an increasing threat of litigation.

Around 250 DB schemes currently have to produce Task Force on Climate-related Financial Disclosure reports. These schemes, along with all other DB schemes that have more than 100 members, also need to consider financially material factors, including those relating to environmental, social and governance, and climate change.

Trustees should allow for the potential impacts from climate change and wider sustainability issues when considering their future scheme horizons, and their possible long-term covenant, investment and funding strategies.

Rethinking strategies

In last year’s statement, we grouped schemes broadly into three categories.

  1. Funding level is at or above buy-out.
  2. Funding level is above technical provisions but below buy-out.
  3. Funding level is below technical provisions.

We expect these groupings and the related expectations to remain relevant.

Group 1: Funding level is at or above buy-out

Schemes in this group currently have the main options of buying out or running on. Consolidation might be an option subject to gateway tests. Given constraints in the insurance market, some schemes may adopt a strategy to run on in the short to medium term, and buy-out when specific targets are met, for example when surplus, maturity, cash out flow or asset size hits certain levels. We expect trustees to document their strategy and explain why it is in the best interest of members.

If the strategy is to buy-out liabilities with an insurance company, the scheme rules may give trustees some guidance and they may need to take advice and consult the employer. Among other things, trustees will need to consider whether proceeding with an actual buy-out, either outright or in stages, is the best way to protect members’ benefits and achieve the best price.

For schemes considering an insurance solution, we would encourage trustees to take sustainability into account during their due diligence. Helpful guidance can be found in the sustainability principles charter for the bulk annuity process on the Accounting for Sustainability site. The effect of buy-out on the possibility of future discretionary increases in payment may also be a relevant consideration.

If the strategy is running on the pension scheme, trustees should ensure it is a better option for members, for example because it offers them, and the employer, potential to benefit from continued surplus generation. However, running on a scheme involves some investment risk, as well as other risks from longevity, scheme administration, and expenses of a long run-off. Trustees may mitigate some of this risk by creating a specific risk buffer using some of the surplus. It is likely larger schemes will have greater economies of scale, better governance, and greater potential benefit to stakeholders from running on.

Whichever option trustees choose, they may need to take advice about the risks and benefits of doing so, and their relevant duties. They should ensure they have a sufficient understanding of any new models or options they are contemplating, including areas where they may be transferring control over key decisions to third parties. They should also be clear about the key risks within their chosen option and put in place suitable strategies to mitigate them.

Group 2: Funding level is above technical provisions but below buy-out

We would expect trustees to review the long-term objective and a timescale for reaching it. If they haven’t agreed a long-term funding target yet, they should do so as a priority. Trustees may also have plans to gradually transition their investment strategy to align with that in the long-term objective, with triggers for action as the scheme funding improves or the scheme matures.

If funding levels have significantly improved in recent years, trustees should consider accelerating this process. Trustees in this group are also potentially able to consider the relative merits of run on with the potential for surplus benefiting members and the employer versus buying out in the future.

Schemes may consider the emerging options such as consolidators, capital-backed journey plans, and the recent consultation on a public sector consolidator via the Pension Protection Fund. We would expect improved funding levels to allow for such options to be explored and whether they would be in members’ interests.

It may be reasonable for some trustees to take a ‘wait and see’ approach, given the immaturity of these options. However, we would expect actions in the meantime to ensure an appropriate level of risk in the scheme’s funding strategy, as well as a clear timetable for future considerations.

Schemes in this group may also want to start to explore whether there are more effective ways to manage the scheme to achieve greater levels of governance and economies of scale. Some full consolidation and insurance options may not yet be affordable, so understanding when they may become affordable as the scheme progresses towards its long-term funding target is likely to be a useful consideration. In the meantime, there are options to consider which might improve governance and benefit from greater buying power. This may also allow for greater value to be delivered to members through increasing access to private market investments if it is currently difficult given limited governance or scale.

We would encourage trustees to consider all options and not just accept the status quo. We intend to publish guidance on DB alternative arrangements for consolidation later this year, which will provide more detail.

Group 3: Funding level is below technical provisions

If the scheme’s funding level is below technical provisions, trustees should focus on bridging this gap first. They should revisit the technical provisions to ensure they are aligned to the long-term funding target. Risk-taking should be supported by the employer covenant and should reduce as funding improves or the scheme matures. Any deficit should be recovered as soon as the employer can reasonably afford it.

Our guidance from previous years’ statements applies, including the accompanying tables in last year's statement.