The Pensions Regulator (TPR) has encouraged UK trustees to consider a broader range of defined benefit (DB) endgame options, as improving funding levels leave many schemes in surplus.
According to TPR, more than 80% of DB schemes were in surplus on a low-dependency basis at the end of September 2025, with an estimated £170bn (€197bn) of surplus assets.
The regulator said trustees now have more options than ever, including running schemes on and using part of the surplus generated to improve member benefits.
TPR said it is open to innovative approaches, including run-on models and controlled surplus-sharing arrangements, provided they preserve member security and are supported by robust governance and professional advice.
Ben Gunnee, executive director of market oversight at TPR, said that while buying out liabilities with an insurer has traditionally been regarded as the optimal way for trustees to meet their duties, it is not the only option.
He said: “We expect trustees, sponsoring employers and their advisers to engage with us early to clearly define how any proposal under consideration delivers a good outcome for members.”
The regulator’s comments come amid growing government support for innovation in the DB market. Earlier this month, pensions minister Torsten Bell said the government supported new approaches, provided they did not come at the expense of members’ security.
Flexible Apportionment Arrangement
One approach highlighted by Bell was the Flexible Apportionment Arrangement (FAA).
The model was used by the Stagecoach Group Pension Scheme, which transferred sponsorship and covenant support to Aberdeen in December.
The transaction enabled the pension fund to continue to run on, provide an immediate uplift to members’ benefits and potentially share future surpluses between members and the new sponsor.
The government announced on 16 June that it would consult on whether and how the FAA framework should be strengthened.
Pending any regulatory changes, TPR said it would consider an interim approach to FAA transactions with characteristics similar to the Stagecoach deal.
Gunnee said supporting innovation in savers’ interests was a key pillar of TPR’s regulatory strategy and that the strong funding position of many DB schemes was likely to encourage further innovation.
He said: “We want an open dialogue with the market – to support innovation while ensuring that the guard rails are in place for this to happen safely. And that in any option schemes pursued, members receive security and better outcomes as a result.”
Adam Boyes, head of trustee consulting at WTW, said the government’s planned reforms would make surplus-sharing arrangements easier to implement from April 2027, giving trustees and sponsors another option alongside buyout and run-on strategies.
“Unless this is disrupted by political change, surplus-sharing deals will become easier to implement from April 2027,” he said. “This change to the landscape adds further pause for thought while trustees and sponsors assess what is right in their circumstances.”
Boyes added that forthcoming consultations on both the superfund regime and FAA framework would be important in determining how far innovative endgame solutions could develop.
“Hopefully, the door will be left open to novel endgame solutions like the Aberdeen-Stagecoach FAA that improved members’ benefits where these are conducted in an appropriate way,” he noted.
Jon Forsyth, chair of the Society of Pension Professionals’ DB Committee, said: “We support the principle that trustees should consider the full spectrum of solutions and make decisions in the context of their scheme’s circumstances.”
Forsyth added that TPR’s forthcoming surplus guidance would play an important role in helping trustees assess the interaction between endgame planning, surplus utilisation, covenant assessment and member outcomes.
Laura McLaren, head of DB scheme actuary services at Hymans Robertson, said: “While a buyout will still be the right choice for some schemes, trustees should carefully consider all available routes. There’s no one-size-fits-all solution, and the focus should be on understanding which approach delivers the best balance of security, value and long-term sustainability for members.”
She noted that whatever path is chosen, “member outcomes need to remain at the heart of the decision”.
“Strong funding positions create opportunities, but trustees must be confident that any strategy maintains benefit security while exploring ways to enhance member value.”
