The Pensions Regulator (TPR) has encouraged trustees and employers to actively consider their defined benefit (DB) scheme endgame strategies, warning that a “step change” in funding levels is transforming the DB landscape.

Publishing its first DB universe projection model report, TPR said improved funding positions, legislative developments and new consolidation options were reshaping the sector and forcing schemes to make strategic decisions about their long-term future.

TPR director of evidence and external risk, Sarah Tune, explained that the regulator had produced the report to help schemes navigate the changing environment.

“The step change in DB funding means trustees and employers must actively consider their endgame strategy,” she argued.

“Whether that’s running-on, consolidating via a superfund, or buying out, the decisions you make today will shape the future for your members.

"Stay ahead of the curve - because in this changing landscape, standing still is not an option.”

Tune added that the analysis formed part of TPR’s aim to take a more proactive approach to publishing insights about the pensions landscape.

“We’ve produced this new report as part of our intent to be more proactive and forward-looking in publishing regular analysis of the pensions landscape, across both DB and defined contribution (DC) schemes,” she said.

The report modelled how the UK’s DB universe could evolve over the next decade, starting from March 2025, when there were around 4,700 private-sector occupational DB schemes with roughly £1.1trn in assets and around nine million members.

According to TPR, the sector has undergone a “paradigm shift” in recent years, with the majority of schemes now in surplus.

Indeed, the proportion of schemes in surplus on a buyout basis increased from 2 per cent in 2016 to 52 per cent by March 2025.

This improvement in funding, alongside legislative changes such as the proposed Pension Schemes Bill, is expected to give trustees greater flexibility in managing scheme surpluses and planning their long-term strategies.

With this in mind, the regulator noted that trustees must now decide how and when to exit the DB landscape through buyout, whether to run schemes on to make use of surplus funding, or whether consolidation through superfunds may provide a viable alternative.

TPR’s modelling suggested that around 75 per cent of DB schemes could be able to buyout by the end of the decade without requiring additional employer contributions.

As a result, the regulator expected significant activity in the risk transfer market, with between 2,400 and 2,600 schemes - representing around £200bn to £400bn of assets - projected to transfer to insurers through bulk annuity transactions over the next 10 years.

However, TPR stressed that the insurance market should have the capacity to absorb schemes seeking to buyout during this period, although short-term pressures may arise.

Despite this expected activity, the DB sector is projected to remain a significant component of the occupational pensions market, with assets under management still estimated to be around £0.6trn to £0.7trn in real terms by 2035.

Meanwhile, the report also highlighted the growing importance of surplus management, with buyout surpluses across the sector projected to reach around £120bn in real terms over the next decade.

How these surpluses are used will depend on decisions made by trustees and employers, including whether to extract them gradually through run-on strategies, distribute them at the point of buyout, or retain them within schemes for future use.

For schemes that remained open to new entrants, TPR suggested that ongoing funding surpluses could contribute around £30bn towards the cost of future accrual over the next decade.

The regulator also suggested there was space for both insurers and superfunds to operate within the DB consolidation market.

Indeed, under one scenario modelled in the report, around 350 schemes with approximately £35bn in assets could transfer to superfund consolidation vehicles.

Overall, TPR said the projections highlighted the scale of change facing the DB sector, urging trustees and employers to assess their options and plan the future direction of their schemes over the coming decade.

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