Focus on endgame planning, TPR tells DB pension scheme trustees

More than half (54%) of pension schemes are in surplus on a buyout basis, the regulator reported, with 76% in surplus on a low-dependency basis. 

Using a technical provisions approach, 85% of pension schemes are at least fully funded, the Pensions Regulator (TPR) reported. 

It is the first Annual Funding Statement from the regulator since the introduction of its revised DB Funding Code came into effect last year. TPR is set to introduce a new online reporting service for valuations  

As a result of improved funding levels, TPR said it expected roughly 80% of pension schemes to qualify for its “fast track” approach to the funding code and valuations, designed to lower the regulatory burden associated with getting valuations approved.  

“Despite healthy funding positions, trustees should keep in mind the potential for heightened trade and geopolitical uncertainty and understand any risks to their scheme’s investment strategy and employer covenant.”

David Walmsley, TPR

David Walmsley, director of trusteeship, administration and DB supervision, said the new DB funding code allowed schemes to make appropriate changes to prepare for their selected endgame option “and to better understand their funding strengths and risks”. 

Lucy Dunbar, partner at Sackers, said: “With specific obligations to plan for the future now baked into legislation, this feels like a seminal moment. While the funding position of many DB schemes is undoubtedly healthier than it has been in a long time, TPR and the pensions industry have been gearing up for the new DB funding regime for some time now.” 

Impact of volatility 

TPR’s Walmsley also acknowledged the impact of recent market volatility in the first four months of 2025. DB schemes were largely well funded at the end of the first quarter, but equity and bond markets have been hit by the reaction to trading tariffs imposed by the US at the start of April.

“Despite healthy funding positions, trustees should keep in mind the potential for heightened trade and geopolitical uncertainty and understand any risks to their scheme’s investment strategy and employer covenant,” he said. 

This was a key theme of the regulator’s report, with TPR urging schemes to continually consider the effects of investment volatility on their strategies. 

“In our experience, it’s far from obvious whether an employer will be materially impacted by tariffs – the implications are far-ranging and nuanced.”

Katie Lightstone, PwC

John Clements, partner and investment adviser at LCP, said: “Given how volatile investment markets have been recently, it’s timely that TPR has highlighted that trustees should recognise the effects of heightened geopolitical risk and trade uncertainty. 

“Trustees should be alert to the short-term effects on liquidity and cash flow requirements, as well as the longer-term implications for their investment strategy.” 

However, Mark Tinsley, principal at Barnett Waddingham, said the regulator’s comments around market volatility were “restrained” compared to previous statements. He said this “speaks volumes about the current healthy funding landscape, with the regulator estimating that over half of schemes can afford buyout”. 

Katie Lightstone, pensions employer covenant partner at PwC, said: “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.” 

‘Excessive’ compliance burden from new code

Despite TPR’s aim of reducing the regulatory burden on pension schemes, David Hamilton, chief actuary at Broadstone, said the amount of work needed to comply with the new Funding Code was “excessive”, as much of the guidance included in the Annual Funding Statement was “likely to apply to only a small minority” of schemes. 

“The key takeaway from the Annual Funding Statement is the further evidence that the long gestation period of the new funding regime meant it has arrived too late to be of benefit to most schemes,” he said.  

“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.” 

Barnett Waddingham’s Tinsley agreed, adding: “The detailed technical clarifications on covenant considerations provide useful guidance. However, the complexity and volume of the guidance illustrate the stark juxtaposition of the new regime – at a time when three out of four schemes are fully funded on a low dependency basis, paradoxically, the burden on trustees and sponsors has never been heavier.”