EY has urged defined benefit (DB) pension scheme sponsors to take a more strategic and proactive approach to funding valuations under The Pensions Regulator’s (TPR) new DB funding code, warning that pension funding should now be treated as a “core business issue”.

In a new report, One year on: Five lessons from the defined benefit funding code for corporate sponsors, EY outlined five key lessons that have emerged since the code came into force, including the need for sponsors to prioritise long-term funding strategy over simply choosing between the fast-track and bespoke valuation routes.

The report said many advisers begin with the fast-track framework because it offers a simpler benchmark, but stressed that it “is not the right fit for every scheme”.

EY argued that schemes with strong employer covenants and justified investment risk may benefit from bespoke arrangements instead, provided sponsors can supply sufficient evidence to support their approach.

The firm also warned sponsors against redesigning their entire funding strategy solely to satisfy fast-track requirements, noting that fast track “does not permit investment outperformance in the recovery plan”, potentially leading to overfunded positions.

In addition, the report highlighted the importance of developing a credible pathway towards low-dependency funding targets, with sponsors encouraged to map out clear triggers linked to funding levels, covenant milestones, and scheme maturity.

EY said trustees are increasingly seeking evidence that covenant reliance will reduce over time through de-risking measures, contributions and contingency planning.

The report also emphasised the growing importance of covenant visibility under the funding code, warning that trustees may adopt more prudent assumptions if sponsors fail to provide a “clear, evidence-based narrative” about the employer’s financial resilience.

To support trustee confidence, EY recommended sponsors provide information on cash generation, liquidity, leverage headroom and downside stress testing.

The report further identified contingent assets, such as parental guarantees and escrow arrangements, as an increasingly important tool for supporting higher investment risk or longer recovery plans.

Alongside this, EY encouraged sponsors to engage early with trustees on expense assumptions, warning that overly cautious expense reserves and inflation assumptions could materially affect funding positions.

EY UK Pensions Strategy & Transactions partner, Jane Evans, said: “Amid a challenging macroeconomic backdrop, UK businesses are under even more pressure to be proactive rather than passive.

“The response to the DB funding code reflects this shift. One year on, many sponsors are now treating pension funding as part of a long-term transformation, using robust data and clear covenant narratives to support stronger risk management and trustee confidence.

“By taking a strategic approach to regulatory change, firms are building resilience, protecting investment, and positioning themselves for sustainable, competitive growth.”

EY concluded that the funding code has shifted the focus of DB funding away from short-term valuations towards “long-term resilience”, with sponsors urged to “lead the process rather than be led by it”.

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