Executive summary
Long-term target and aspirational funding target
Under the DB funding code, trustees must set a long-term funding and investment strategy, including how benefits will be provided and the low-dependency target at significant maturity. Many schemes are going beyond the minimum requirement by setting additional aspirational targets to support long-term outcomes such as insurance buyout or enhanced benefit security.
We asked schemes which long-term funding target they will select in the Statement of Strategy.
We have seen a split between insurer buyout and run-on as expected long-term targets in the Statement of Strategy with around 1 in 5 still unsure. We’ve observed a trend for larger schemes to select run-on whereas medium and smaller schemes are targeting buyout.
We asked schemes if they have an aspirational target in additional to the target in the Statement of Strategy.
Of the schemes who chose run-on, around 40% had an aspirational target to buyout the scheme over the long-term in additional to the target selected in the Statement of Strategy.
Surplus distribution threshold
The UK government is introducing reforms in the Pension Schemes Bill to make it easier for defined benefit (DB) pension schemes to release surplus funds to employers.
We asked schemes how well funded the scheme would be before they would consider sharing surplus.
The survey results capture early thoughts on this emerging area ahead of further regulations and guidance from TPR. Using a buyout measure as a reference point plus a margin was the most common answer chosen by respondents as the point at which surplus could be shared with members or the employer. A high proportion of respondents selected ‘don’t know’, highlighting that many trustees and sponsors are still forming their view in this area.
Surplus distribution to employer and members
The specific test that requires trustees to be satisfied that a surplus payment is in the members’ interests will be removed. Trustees must still comply with their general fiduciary duties, which will be detailed further through regulations and guidance from the Pensions Regulator.
We asked schemes how they intend to distribute surplus between the employer and members.
A noticeable result is that around 4 in 5 respondents stated they would be open to the possibility of distributing surplus.
Our survey results indicate that there is a wide range of views on how this surplus could be distributed ranging from all to the member to all to the employer.
We asked schemes how would they share surplus benefits with members.
Responses indicated that discretionary increases are the preferred mechanism for distributing surplus, with other schemes favouring alternatives such as cash payments or payment of DC contributions. This likely reflects the desire to deliver a fair method of proportionally distributing any surplus to members and maintaining simplicity in administration.
Statement of Strategy - experience one year on
The DB funding code introduced the statement of strategy for pension schemes to outline their long-term funding and risk management approach. This must be agreed with the employer.
We asked schemes how the Funding Code has affected them.
Around four in five schemes surveyed reported that the DB funding code has not had a material impact on their long-term strategy, valuation outcome or investment approach.
We asked schemes if they expect to meet the Fast Track requirements.
While the majority of schemes plan to adopt the Fast Track approach under the new DB funding code, around three in ten schemes indicated that they intend to follow the bespoke route instead. This proportion is higher than TPR’s expectations (which was noted to be around 2 in 10 in their 2025 Annual Funding Statement) suggesting that more schemes anticipate they may need greater flexibility to reflect their specific funding circumstances or investment strategies.
Expense allowance
The DB funding code introduced the requirement for all schemes to achieve funding levels that ensure low dependency on their sponsoring employer in the long-term. This means that schemes are required to target a funding position and investment strategy which is resilient enough to mean that no further employer contributions are expected, which includes relying on employers to fund ongoing scheme expenses.
We asked schemes how they intend to reserve for expenses in their next Technical Provisions valuation.
Our survey shows that only 2% of schemes are planning on not allowing for an expense reserve within their Technical Provisions measure as part of their next valuation.
Incorporating an appropriate expense reserve has become a key part of actuarial valuations, particularly as schemes prepare for a low-dependency funding position. The exception being certain schemes where the employer meets expenses directly outside of the scheme.
Guarantees
Few guarantees meet TPR’s look-through criteria guidance, however in many cases they remain a valuable part of the covenant. Therefore, commercial judgment and flexibilities in the guidance need to be considered to give appropriate credit for non-qualifying asset underpins within covenant advice in the specific circumstances.
We asked schemes whether they have a guarantee and are looking to change this.
Just over a quarter of the schemes surveyed had a guarantee of some form in place.
Of these, around a third are looking to amend the terms of the guarantee to incorporate suggested ‘look through’ terms in TPR’s Funding Code guidance.
Main issues for sponsors and trustees
Concerns across the board are broadly similar to last year’s survey, with data preparation and third-party administrator capacity being the most common.
We asked schemes which issues are likely to have the biggest impact in the next 12 to 24 months.
Consistent with our prior year survey, data and administration capacity remains the top priority for sponsors and trustees. Schemes are typically looking to solve data issues in the short-term so that they are well placed for approaching the insurance market. Capacity in this area is also seen to be an issue given the large volume of schemes who are looking to approach the market. However, The Pension Scheme Bill’s proposal around surplus release may mean that we see more schemes looking to run-on.
Review of investment and long-term strategy are also seen to be key priorities as schemes submit their first Statement of Strategy under the DB Funding Code.
Further responses (respondents were asked to provide a maximum of three)
Changes to pensions policy e.g. surplus extraction |
6% |
Trustee board time |
5% |
Another issue |
5% |
The Employer's resources to finance the scheme |
4% |
Dashboards |
4% |
Member engagement and communication |
3% |
Retirement provision across whole workforce, i.e. defined contribution considerations |
3% |
AI adoption |
1% |
Notes about survey
This document has been prepared only for the purpose of facilitating a general discussion on the topics and issues highlighted – it should not be regarded as advice or indicating a course of action. We accept no liability (including for negligence) to anyone else in connection with this document, and it may not be provided to anyone else.
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