The new defined benefit (DB) funding regime has proved less burdensome than initially feared for most pension schemes, with improved funding positions easing regulatory pressures, according to XPS Group.

In its latest report, Pension valuations: A headache avoided?, the consultancy suggested that initial concerns over restrictive funding requirements and increased compliance obligations had largely failed to materialise.

It highlighted that around 80 per cent of DB schemes are expected to meet The Pensions Regulator's (TPR) Fast Track criteria, while improved funding levels have allowed valuations to shift from deficit management towards long-term strategic planning.

XPS explained that trustees had initially been concerned that the new regulations, which require schemes to target a low dependency funding position by significant maturity, would force schemes into defensive, low-yielding investment strategies earlier than planned.

Additional employer covenant requirements and the detailed information required for TPR's statement of strategy had also raised concerns about the potential administrative burden.

However, rising gilt yields have significantly reduced the value of scheme liabilities, leaving many schemes in a stronger funding position, with some now reporting surpluses on both low dependency and insurance buyout measures.

As a result, XPS argued that valuations had evolved from exercises focused on managing deficits and securing employer contributions into opportunities to refine long-term funding and endgame strategies.

The consultancy highlighted TPR's Fast Track approach as a key opportunity for trustees to reduce complexity, with the regulator anticipating that around 80 per cent of DB schemes could meet the criteria.

While the bespoke route remained important for some schemes, XPS warned it could require extensive, potentially costly evidence to justify scheme-specific risks.

It suggested that trustees of well-funded schemes should therefore consider whether they could satisfy Fast Track requirements, particularly where schemes had already achieved low dependency funding.

XPS also emphasised the importance of incorporating the statement of strategy into the valuation process from the outset, rather than treating it as a separate compliance exercise.

However, the consultancy acknowledged that challenges remained for schemes in deficit, with around 10 per cent expected to have a technical provisions shortfall.

For these schemes, valuations would remain focused on repairing deficits and employer affordability, although long-term planning could still inform funding and investment decisions.

XPS Group head of DB strategy solutions, Nick Vine, said: "Having worked closely with trustees on their first valuations under the new regime, I've seen a clear gap between what many expected and what has actually happened.

"For most schemes, the conversation has moved beyond deficits and compliance towards interesting discussions around long-term strategy and the options available."

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