The Pensions Regulator’s latest Annual Funding Statement shows nine in 10 defined benefit schemes are fully funded on technical provisions, and more than half are in buyout surplus. TPR will soon outline its thinking on surplus release when the government consults on regulations – expected to be in force in 2027 – and the regulator will consult on more detailed surplus guidance later this year.  

Almost all schemes in the 2025-26 valuation tranche are fully funded on a TP basis, with the aggregate funding level as at 31 December 2025 being 124% and just 10% expected to be in deficit. Four in five schemes were also in surplus on low dependency and 60% boasted a surplus on a buyout basis. Higher gilt yields since early 2022, combined with past sponsor deficit contributions and lower risk investments, have improved the actuarial figures for DB schemes.  

The regulator said it will shortly publish a statement outlining issues trustees should consider around surplus release and consult on guidance later this year, as sponsors of UK schemes will soon be able to access surpluses due to the recently passed Pension Schemes Act 2026.  

However, TPR also highlighted that surpluses are only on paper and can disappear as quickly as they come. “Trustees should remain alert to wider economic and geopolitical uncertainty” and understand the risks in their investment strategies and sponsor covenants, it said.  

Trustees are warned not to develop an over-reliance on surplus. “We would not expect trustees to rely on the full surplus amount to support a higher-risk strategy,” for example, and “if we engage with trustees in relation to the valuation and find the scheme’s strategy had been materially changed as a result of allowing for a TP surplus, we may ask the trustees to justify their approach” the regulator said.  

Still, with improved funding, TPR now wants trustees to prepare for what comes next. “DB funding has changed dramatically, and it’s prompting trustees and employers to rethink their endgame. Run-on, superfund consolidation, buyout — whichever route you’re considering, the decisions you make now will shape members’ futures,” said executive director of market oversight, Ben Gunnee. “We expect trustees to maintain their focus on long-term planning and ensure their scheme has a clear and well-evidenced endgame strategy.”  

Good funding means valuations are increasingly a strategic tool rather than a budgeting exercise to determine the size of the deficit contributions, TPR said. Schemes funded to more than 110% on a low dependency basis should now focus on finalising and implementing the endgame, consider their reliance on the sponsor and have a policy on surplus if they want to run on, while those between 100% and 110% should be planning the endgame, it noted.  

TPR said its estimate that around 80% of schemes should be able to meet the Fast Track approach to valuations under the new DB funding regime was supported by experience. It is keeping the Fast Track parameters unchanged for the current tranche but suggested they could be tweaked for 2026-27 valuations. 

“We recognise that market conditions have changed since those parameters were set using conditions as at 31 March 2023, particularly with materially higher gilt and high-quality corporate bond yields and stronger equity markets. This may imply lower expected returns on growth assets relative to gilts than previously,” the AFS reads. “We will continue to keep these under review and, if current market conditions persist, we may consider updating the TPs parameters for T26/27 valuations.” 

The other conditions required to meet Fast Track are also kept under review, including “the definition of low-risk schemes for purposes of submitting a statement of strategy, particularly how this applies to schemes that have a buy-in covering all members”.  

The Association of Consulting Actuaries is supportive of TPR’s call for most DB schemes to consider their endgame options and develop a surplus policy. 

“The next step on DB surplus is really important, and we are seeing an increasing number of schemes looking at running on for several years rather than insuring at the earliest opportunity. Getting the secondary legislation and Regulator guidance just right is critical to supporting trustees and sponsors in taking an approach that reflects the varied characteristics and history specific to their own scheme and associated employer or sponsor,” said ACA chair Stewart Hastie. 

 

Hastie highlighted that surplus release can be an emotive subject, making it important to use “appropriate terminology and language to support the right behaviours, recognising the requirement for solvent employers to fund DB schemes prudently meant that DB schemes were always expected to end up in surplus at some point”. 

 

He pointed out that TPR has now started to differentiate between schemes that are above 110% low dependency funded and those between 100% and 110% funded – “perhaps giving some indication of how it might approach the DB surplus guidance expected towards the end of this year”. 

  

The Society of Pension Professionals has also welcomed the AFS. Chair of the SPP’s DB committee, Jon Forsyth, said clarity on emerging areas such as surplus release and endgame options will be essential.  

 

“Trustees will need to balance new opportunities with appropriate safeguards, ensuring that any decisions taken are aligned with member interests while reflecting the evolving legislative and regulatory landscape,” he added. 

  

With many schemes still completing their first valuations under the new regime, it is no surprise that the statement continues to clarify requirements and address common queries, said Laura McLaren, head of DB scheme actuary at Hymans Robertson.  

“Insight on actual submissions remains limited, but TPR plans to analyse 2025 valuation statements once received, which should bring some helpful transparency around how strategies are being assessed,” she said.  

The information about surpluses is the biggest news, suggested Graham McLean, head of scheme funding at WTW. 

 

“TPR says it expects schemes that are running on to consider their policy on surplus, and this will be a key item on trustee board agendas this year,” he said.