The Pensions Regulator (TPR) has said that it expects most defined benefit (DB) pension schemes to continue shifting their focus from deficit recovery to endgame planning, after its latest Annual Funding Statement (AFS) confirmed that around 90 per cent of schemes are now in surplus.

TPR’s 2026 AFS and accompanying analysis showed that around 60 per cent of schemes were in surplus on a buyout basis as at 31 December 2025, rising to around 80 per cent on a low dependency basis and 90 per cent on a technical provisions (TPs) basis.

This marks a further improvement on last year’s AFS, which showed that 54 per cent of schemes were in surplus on a buyout basis, 76 per cent on a low-dependency basis, and 85 per cent on a TPs basis.

The regulator’s analysis estimated that aggregate DB scheme funding reached 124 per cent at the end of December 2025, with assets of £1.14trn against liabilities of £922bn.

TPR also estimated that 88 per cent of schemes were in surplus on a TPs basis at the end of 2025, compared to 73 per cent three years earlier, while only 12 per cent remained in deficit.

The regulator said that, in line with last year, it expects most schemes in the current valuation tranche to focus on endgame planning, with schemes increasingly considering buyout, run-on and consolidator options.

It added that the improvement in funding positions had been driven primarily by higher gilt yields over the three-year period to December 2025, which reduced liabilities faster than assets.

Indeed, the regulator noted that long-dated conventional gilt yields rose from around 4 per cent to 5 per cent between December 2022 and December 2025, while real yields increased from around 0.5 per cent to 2 per cent.

Although both asset values and liabilities fell over the period, liabilities declined by around 10 per cent, while assets fell by 5 per cent, improving overall funding levels.

TPR also highlighted the continued pace of de-risking in the sector, with the majority of DB scheme assets now invested in bonds, including leveraged liability-driven investment (LDI) strategies, while buy-in and buyout activity continued to accelerate.

The regulator estimated that around £135bn of pension scheme liabilities had been insured through annuity purchases, including buy-ins and buyouts, over the three-year period to the end of 2025.

However, TPR recognised that recent geopolitical and market volatility continues to create uncertainty for schemes and sponsors.

The regulator pointed to increased financial market volatility during the first quarter of 2026, “principally due to the Iran war”, alongside higher gilt yields, rising inflation expectations and widening credit spreads.

Despite this, TPR said overall funding across the occupational DB sector remained “relatively healthy”.

The AFS also provided further guidance for trustees and employers completing valuations under the new DB funding regime, which now applies to valuations with effective dates on or after 22 September 2024.

TPR said experience to date suggested that around 80 per cent of schemes should be able to meet Fast Track requirements at “minimal or no cost” to employers, enabling a lighter-touch regulatory approach.

The regulator confirmed that it does not intend to change the Fast Track parameters for T25/26 valuations, although it cautioned that the framework remains under review as market conditions evolve.

In addition, TPR flagged forthcoming guidance on surplus extraction following new legislation included in the Pension Schemes Act 2026.

The regulator said it would publish an initial statement shortly, setting out factors trustees should consider around surplus release, before consulting later this year on more detailed guidance ahead of regulations expected to come into force in 2027.

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