UK pension schemes at a crossroads as surplus distribution and data challenges dominate decision making

• 41% of schemes are targeting insurance buyout as their long-term funding goal, while 28% plan to “run-on”, a route favoured by larger schemes. 

• Four out of five schemes are open to surplus distribution.

• Data readiness and administrator capacity remains the top operational challenge, as cited by 21% of schemes

UK defined benefit (DB) pension schemes remain resilient despite regulatory change and operational pressures, according to PwC’s 2025 UK Pension Funding Strategy Survey. The latest research, based on responses from schemes with assets totalling more than £100 billion, reveals a sector reassessing long-term objectives and grappling with the practicalities of surplus distribution and data management. 

Despite ongoing economic and regulatory shifts, most schemes appear to be showing stable or improving funding positions. Insurance buyout remains the most popular long-term target, but more than a quarter, 28%, are now planning to run-on, particularly larger schemes. Notably, around one in five schemes remain undecided about their ultimate destination, reflecting complexity and uncertainty around the market options.

Surplus distribution has emerged as a key issue following the Pension Schemes Bill proposal to ease surplus release to employers and members. Four in five schemes are open to sharing surplus, but views on how and when to do so are still developing. Discretionary pension increases are the preferred method for sharing benefits with members (40%), while almost a third, (29%) of respondents remain uncertain, underlining that many are forming initial views in this evolving area. 

Saye Mkangama, Pensions Funding & Investment Partner at PwC, said:

 “This year’s survey highlights a sector facing considerable transformation. Although regulatory changes and the introduction of the DB Funding Code are shaping the environment, it is practical concerns, particularly around managing surplus and ensuring data readiness, that are coming to the fore for trustees and sponsors. As the situation evolves, schemes must adopt strategic plans characterised by both flexibility and forward-thinking.” 

“The 2025 findings emphasise the critical need for effective data management, a well-defined strategy, and the agility to respond to continuous change. With regulations in a state of transition and operational pressures intensifying, UK pension schemes are required to show both resilience and the capacity to adapt.”

The new DB Funding Code has had a limited impact on most schemes’ long-term strategies, valuation outcomes, or investments. Most schemes plan to adopt the Fast Track approach - a standardised route that allows schemes meeting set criteria to avoid extra regulatory checks. However, around three in ten expect to follow the Bespoke route, which offers more flexibility but requires additional justification.  This is higher that the two in 10 anticipated by the Pensions Regulator, suggesting many schemes want to tailor their funding and investment strategies.

Katie Lightstone, Employer Covenant & Restructuring Partner at PwC, said: 

“Flexibility is emerging as a critical theme under the new DB Funding Code. When schemes build on an existing strategy or refresh their long-term plan, trustees and sponsors discussions are typically constructive. By contrast, those reshaping to meet Fast Track parameters often face more complex negotiations, as trustees and employers work to balance regulatory expectations, such as expense reserves, with achieving a sustainable funding outcome. 

“Encouragingly, the new framework is prompting more meaningful conversations on long-term scheme strategy, risk, and affordability - a positive development for members.”

Operational resilience is also in sharper focus. Nearly all schemes plan to include an expense reserve in their technical provisions, with only 2% planning to exclude one in their next valuation, reflecting the specifics of certain schemes where the employer meets expenses directly. 

Few schemes currently meet the Pensions Regulator’s new ‘look-through’ criteria for guarantees, and only a third of those with guarantees are considering amendments.

ENDS