PwC responds to TPR’s Annual Funding Statement 2025

Commenting on The Pensions Regulator’s Annual Funding Statement, Katie Lightstone, Pensions Employer Covenant Partner, said:

“TPR has asked trustees to develop a ‘policy for the release of scheme surplus’, which signals a material shift in the balance of power around use of surplus in the upcoming Pensions Bill. Covenant strength - particularly  assessment of covenant longevity -  and downside protections for covenant and funding will be critical to these contingency plans, especially when trustees will need to justify any decision against their existing scheme rules. 

“In response to US tariffs, TPR asks trustees to ensure they understand the impact on employer covenant as well as investments, and revise their journey plan if needed. In our experience, it’s far from obvious whether an employer will be materially impacted by tariffs - the implications are far-ranging and nuanced. Management teams are still trying to understand the immediate impacts and longer term ripple effects, so an external lens can be valuable.”

“TPR has clarified why PPF-compliant guarantees, which were previously thought to be the gold standard, are not robust enough to support funding to low dependency. It expects trustees to negotiate improvements where possible or take less risk if not supportable. However, it stops short of explaining what enhancements are needed for a PPF guarantee to qualify as ‘look-through,’ which feels like a missed opportunity." 

“Further guidance has been provided on how trustees should consider 'supportable risk', but TPR has stopped short of publishing its own supportable risk formula (something many in the market had been eagerly awaiting).  Trustees working through valuations just now may need to revisit their approach which may now involve a higher risk measure.” 

Saye Mkangama, Funding and Investment Partner commented:

“The supporting data in the 2025 Annual Funding Statement (AFS) shows that over half of UK pension schemes (54%) are now in surplus on an insurance buyout measure, rising to 76% when assessed against TPR’s ‘low dependency’ target.

“After years of grappling with stubborn pension scheme deficits, this major pendulum shift means that around 3,700 pension schemes now face critical decisions on how to deploy surplus and capitalise on their improved positions.

“Whether it is passing funds to beneficiaries through benefit improvements or refunds to employers or transferring risk to the insurance market, TPR is asking trustees to seek advice and work collaboratively with sponsors to decide what option will deliver the best outcomes for stakeholders.

“With billions of pounds at play, the potential for regret risk is high. Access to the right data and analytics to inform and document decisions will be crucial. Whatever path is chosen, trustees and sponsors must ensure that the appropriate governance and investment strategy is in place to support that choice, particularly against the current backdrop of ongoing macroeconomic uncertainty and market volatility.”

Notes to editors

TPR has clarified that supportable risk should consider a 1 in 6 Value at Risk (VaR) over the scheme’s reliability period, not just a one-year period.