Pension Regulator’s 2026 annual funding statement – further evidence that most schemes are now focusing on endgame planning and potential surplus use

The Pensions Regulator (TPR) has today issued its 2026 Annual Funding Statement. This is the second such statement since the start of the new funding regime and is particularly relevant to actuarial valuations with effective dates during the 12 months starting from 22 September 2025. 

TPR highlights further improvements in DB scheme funding levels, with around 80% of schemes estimated to be in surplus on a TPR-derived low dependency basis, and around 60% of schemes now estimated to be in surplus on a buyout basis. In this context, they expect most schemes to be shifting their focus to endgame planning and highlight the upcoming changes to surplus release rules. TPR continues to estimate that around 80% of schemes should be able to meet the Fast Track approach for simpler valuation submissions. 

Richard Soldan, Partner and Head of LCP’s DB Funding Group, commented: 

“We certainly agree with TPR that valuations are a great opportunity for trustees and sponsors to review their long-term strategy, and this year’s statement provides more evidence that for the majority of schemes the focus is turning to endgame planning and potential use of surplus. TPR reiterates its expectation that schemes that plan to run-on should consider their policy on surplus.  However, in our view, this is relevant for most schemes, as the way in which a potential surplus might be used could influence the endgame that trustees wish to pursue – if an employer says it will not consent to any additional benefits to members, for example, trustees may be less likely to run a scheme on into the future.  And schemes that are targeting risk transfer should certainly be considering this too – especially those that already have a surplus on a buyout measure. 

“The clarifications from TPR are mostly welcome, and on the whole, the statement is sensible. TPR has said it will be reviewing its Fast Track parameters in future, hinting that it plans to set the Fast Track bar higher for less mature schemes. We would urge TPR to consider this carefully and consult with industry, as our recent experience of strong pricing in the insurance market indicates that the current Fast Track requirements for technical provisions and low dependency could already be close to buy-out levels in some cases, especially for more mature schemes.” 

Jacob Shah, Investment Partner, commented:

“We’re pleased to see the clarifications from TPR on the calculation of the supportable risk test and high resilience test, which are areas we believed risked driving adverse behaviour from trustees. For example, the potential perceived need to re-risk low dependency investment strategies in order to pass the test of high resilience.” 

“Separately, we might in some cases challenge the view from TPR that schemes funded just above low dependency may typically take limited investment risk. This may be appropriate for schemes that are on a journey to buy-out or consolidation. However, for some schemes running on, it would be unusual for them to de-risk as they approach full funding, only to re-risk again once they are funded well above the low dependency funding basis. In any event, the level of risk taken would be highly dependent on the covenant and other circumstances of the scheme.” 

Jon Wolff, Partner and LCP’s Head of Covenant & Financial Analysis and Vice-Chair of the Employer Covenant Practitioners Association, commented: 

“TPR’s new funding regime made it clear that the sponsor covenant is the key underpin for scheme risk taking and should be fully understood in valuations and strategic decisions. This year’s funding statement re-emphasises the importance of covenant but helpfully explains how assessments can evolve in a pragmatic way where schemes have become funded in excess of their technical provisions or, in lots of cases, have a surplus on buy-out.”  

Adrian Bourne, Co-Chair of the SPP’s Covenant Committee, said;

“The strong funding referenced in TPR’s Annual Funding Statement is more than just a number. With most schemes now in surplus, the shift from recovery to future planning reflects real progress and growing resilience, where employer covenant can continue to play a part in shaping credible, well-supported endgames.”

Jon Forsyth, Chair of the SPP’s DB Committee said;

“Against this backdrop of improved funding, clarity on emerging areas such as surplus release and endgame options will be essential. Trustees will need to balance new opportunities with appropriate safeguards, ensuring that any decisions taken are aligned with member interests while reflecting the evolving legislative and regulatory landscape.”

Tom Froggett, Partner and Head of DB Run-On at XPS Group said:

“TPR’s Annual Funding Statement 2026 picks up where its June 2025 guidance left off, by recognising the full range of long-term strategy options, and considering the specific circumstances of each scheme. TPR’s assessment that 60% of UK DB schemes are in surplus on a buyout basis aligns with our latest research, published in March 2026, which highlighted that UK DB schemes could generate £170bn of surplus over the next 10 years – creating significant opportunities for both members and sponsoring employers.

It is also notable that TPR’s Annual Funding Statement continues to categorise schemes according to their funding level relative to a low dependency measure. This is consistent with the expected new surplus regulations which are likely to set 100% funding on a low dependency basis as the threshold for surplus release. In practice, however, we are increasingly seeing trustees and employers explore a ‘run-on like an insurer’ approach, maintaining higher funding buffers to deliver greater certainty and stability over future surplus generation and release.

TPR highlights the roadmap between now and the new DB surplus regime coming into force from April 2027. We welcome the upcoming statement from TPR which will provide early views from TPR on the issues trustees should consider around surplus release, and the more detailed TPR surplus guidance to follow later this year. These elements will be key pieces of the jigsaw. It will be important to cover key principles around surplus release to give trustees a clear blueprint for running on, whilst retaining sufficient flexibility for trustees and employers to come to sensible decisions based on each scheme’s own individual circumstances.”