The Pensions Regulator (TPR) has said that it expects most defined benefit (DB) pension schemes to shift their focus from deficit recovery to endgame planning, after its latest Annual Funding Statement confirmed that the majority of DB schemes are now in surplus.

TPR’s 2025 AFS, which is the first under the new DB Funding Code, showed that just over half (54 per cent) of schemes are in surplus on a buyout basis, rising to 76 per cent on a low dependency basis and 85 per cent on a technical provision basis.

The regulator also said that it expects overall funding as of 31 March 2025 to be broadly similar to that as the end of December 2024, albeit with slightly lower liabilities and asset values.

However, TPR recognised that recent trade and geopolitical tensions have increased uncertainty including around interest rates, inflation and global economic growth, acknowledging that ongoing volatility may influence scheme funding.

Given this, TPR director of trusteeship, administration and DB supervision, David Walmsley, said that "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".

The AFS also provided further information for trustees and employers for schemes undertaking their first valuation under the new DB funding regime, including clarification surrounding covenant and trustee's assessment of supportable risk.

In particular, the regulator has provided further clarification on the covenant guidance shared at the end of last year, including updates on the importance of planning and taking a proportionate approach, the assessment of cash flow, maximum affordable contributions, covenant reliability/longevity and the assessment of guarantees.

TPR also confirmed that it has received particular interest in supportable risk, announcing that it no longer intends to publish a formal supportable risk formula.

However, it has provided further clarification on how trustees should approach this assessment, addressing specific concerns or questions.

In addition to this, TPR, for the first time, defined what it considers to be tolerable risk under Fast Track, clarifying that while fast track may not be the right approach for all schemes, those that do pursue this route can provide less evidence and explanation in the statement of strategy, and it is less likely TPR will engage with the scheme.

TPR's AFS estimated that around 80 per cent of schemes should be able to meet fast track, which is intended to enable TPR to reduce regulatory burden, as schemes can provide less information as part of the statement of strategy.

The regulator acknowledged that, for some of these schemes this might require a change in their existing funding approach, but it argued that this could be done at minimal or no cost to the employer.

It also confirmed that it is not intending to make any changes to the Fast Track parameters for those schemes with valuation dates between 22 September 2024 and 21 September 2025, although it will continue to keep these under review for the future.

“Trustees can also opt for the equally valid Bespoke option," Walmsley added. "We encourage trustees to collaborate early with advisers and employers to determine the most suitable approach."

Alongside its latest AFS, the regulator confirmed that it will launch a new 'Submit a scheme valuation' digital service, including a statement of strategy spreadsheet.

All information for valuations with effective dates on or after 22 September 2024 must be collated and submitted by schemes using these tools.

Guidance will also be published to support trustees considering the best option for their members as they plan their scheme's endgame.

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