Jessica O'ConnorThe Pensions Regulator (TPR) has published its Annual Funding Statement 2026, highlighting continued improvements in defined benefit (DB) pension scheme funding levels and signalling a growing industry shift from deficit recovery towards long-term endgame planning.
The statement is aimed primarily at trustees and sponsoring employers of occupational DB pension schemes with valuation dates between 22nd September 2025 and 21st September 2026, referred to as Tranche 25/26 (T25/26).
According to The Pensions Regulator’s estimates, as of 31st December 2025, around 90% of schemes were in surplus on a technical provisions basis and approximately 80% were in surplus on a TPR-derived low dependency basis.
Around 60% were funded above 110% on that basis and roughly 60% of schemes were in surplus on a buy-out basis
The regulator said these stronger funding positions mean many schemes are now moving away from deficit repair strategies and instead focusing on long-term objectives such as buy-out, consolidation or running on.
The statement also referenced the regulator’s updated guidance on models and options for DB pension schemes, published in June 2025, which is intended to help trustees assess potential endgame approaches.
In addition, the update highlighted forthcoming legislative changes relating to pension surplus release under the Department for Work and Pensions Pension Schemes Act 2026.
Further consultation on detailed regulations is expected later this year, with implementation anticipated in 2027.
The regulator also noted that early experience under the new DB funding regime aligns with expectations that around 80% of schemes will meet Fast Track requirements, enabling reduced regulatory burden and simplified reporting obligations.
The Annual Funding Statement additionally included guidance on funding strategies, covenant assessment, supportable risk, and low dependency funding and investment approaches under the new DB funding code framework.
Mark Tinsley, principal at Barnett Waddingham, said: “With funding levels still strong, it is encouraging to see the regulator clearly signal that trustees and sponsors should now be focusing on endgame planning, including considering intentional run‑on and the use of surplus.
“TPR is also right to be clear that these discussions should not be deferred while the industry waits for further regulation or guidance. This is work that needs to be happening now.”
He added: “We strongly agree that endgame objectives should be shaping valuations and investment strategy. However, in practice many employers remain reluctant to explicitly state buy‑out as their long‑term objective in the statement of strategy, largely due to concerns about unintended consequences.
“As a result, despite the regulator’s intentions, we expect the statement to remain more of a compliance exercise than a strategic tool for many schemes.
“TPR’s warning against complacency is also timely, particularly given ongoing geopolitical instability and growing cyber risk.
“Finally, it is welcome to see the regulator urging schemes to move quickly on resolving Virgin Media issues following Royal Assent of the Pension Schemes Act 2026, allowing trustees and sponsors to finally draw a line under years of uncertainty.”
