The Pensions Regulator warns against complacency amid tariff wars as its latest Annual Funding Statement shows continued high funding. The regulator will issue guidance on choosing endgames, and suggests trustees should be prepared for sponsor requests to release surplus early.

The Pensions Regulator’s director of trusteeship, administration and DB supervision, David Walmsley, has told trustees to be vigilant amid trade tensions in the first AFS under the new defined benefit code, saying they should “keep in mind the potential for heightened trade and geopolitical uncertainty and understand any risks to the scheme’s investment strategy and employer covenant”.

The 2025 AFS, published on Tuesday, found three-quarters (76%) of DB schemes have positive funding levels on a low dependency basis, a concept introduced with the new funding regulations. On a technical provisions basis, 85% show a surplus, while more than half (54%) are overfunded on a buyout basis.  

Given this strong position, Walmsley said: "We expect a shift in focus from repairing deficits to endgame planning. Our new DB funding code equips schemes to make these changes, and to better understand their funding strengths and risks.” 

The regulator will issue guidance to support trustees considering the best option for their members as they plan their scheme's endgame. 

Under the new DB code, schemes can opt for a Bespoke or a Fast Track assessment of funding. TPR estimates around 80% of schemes should be able to meet Fast Track, designed to reduce the regulatory burden, but Walmsley added: “Trustees can also opt for the equally valid Bespoke option. We encourage trustees to collaborate early with advisers and employers to determine the most suitable approach." 

In the coming weeks, TPR will launch a new 'Submit a scheme valuation' digital service, including a statement of strategy spreadsheet, saying all information for valuations with effective dates on or after 22 September 2024 must be collated and submitted by schemes using these tools.  

The Association of Consulting Actuaries’ chair, Stewart Hastie, said much of the annual statement focuses on clarifying aspects of the new funding regime: “Notably the largest component is given over to clarifying the lengthy covenant guidance finally released late last year and ensuring it is applied proportionately given three-quarters of schemes are in a position of low dependency on their sponsor under TPR analysis.” 

 

The Employer Covenant Practitioners Association welcomed TPR's clarifications that emphasise the importance of assessing and monitoring the employer covenant when submitting a valuation under Fast Track parameters, as well as once a scheme is funded to low dependency and in considering its endgame strategy. 

  

“The further clarifications to the assessment of cash flow, maximum affordable contributions, covenant reliability/longevity and the assessment of guarantees will also be of value to our members and clients alike, albeit – as acknowledged by the regulator –- there will inevitably be situations in practice not covered by guidance where the application of professional judgement will be critical to reaching agreement,” said ECPA chair Luke Hartley. 

  

Barnett Waddingham principal Mark Tinsley found this year’s statement “notably bland, especially given the prevailing economic and geopolitical uncertainty”. 

 

He said in previous years, similar levels of uncertainty might have prompted far more extensive guidance.  

 

“That such a restrained approach has been taken this time speaks volumes about the current healthy funding landscape, with the regulator estimating that over half of schemes can afford to buy out,” he said. 

Tinsley said that schemes currently undertaking or preparing for valuations will welcome the reassurance that Fast Track parameters will remain unchanged, but warned that by maintaining the parameters in the current market conditions, “there is a risk of the regulator backing itself into a corner for future assessments”. 

 

Broadstone’s chief actuary David Hamilton said given the high funding levels, the new DB regime has arrived too late to be of benefit to most schemes. 

 

“Whilst proportionality is referred to on almost every other page, the volume of additional work under the new funding regime does feel excessive when the masses of guidance around affordable cash flows, reliability periods etc are likely to apply to only a small minority. The further clarifications within this statement around some of the covenant expectations also demonstrate how one size does not fit all and highlight the potential gulf between best practice aspirations and a pragmatic, risk-based, proportionate approach,” Hamilton argued.   

Elsewhere, TPR highlighted that it is supportive of government proposals to release DB surpluses. 

"Trustees should also be considering how they would respond to potential requests from employers to release some of their scheme's surplus,” said Walmsley, pointing to TPR’s statement on this subject. “They should adhere to current legislation and scheme rules regarding funding surpluses. We await details on the government's plans to legislate in the upcoming pension schemes bill.” 

The ACA’s Hastie wants to see more on surplus release soon. “Let’s hope TPR can move a lot quicker than the Funding Code in releasing new guidance on surplus that brings the right balance between protecting members’ benefits and reckless prudence that holds back economic growth and better outcomes,” he said. 

  

Emma Moore, associate partner at Aon, said as the industry awaits a response from government to its DB options consultation, the suggestion for trustees to consider how they would respond to a request from the sponsor to release surplus is sensible, adding: “The conclusions reached at the first valuation under the new regime may also inadvertently become benchmarks for discussions on surplus release.”