The Stagecoach Group Pension Scheme (SGPS) has agreed a first-of-its-kind deal for Aberdeen to replace Stagecoach as its sponsoring employer, expected to deliver enhanced benefits and long-term security for more than 22,000 members.

Under the deal, Aberdeen will take on responsibility for scheme funding and the management of around £1.2bn in assets.

However, the scheme, which is in significant surplus, will continue to ‘run-on’ under Aberdeen’s sponsorship - a model that both parties say offers a more sustainable long-term solution than insurance buyout for well-funded schemes.

The transaction includes robust guardrails designed to protect the scheme’s financial security, while enabling the trustee to allocate part of the surplus directly to members.

As part of the initial uplift, members will receive a 1.5 per cent increase to all benefits, alongside improved inflation protection through higher caps.

In total, more than £50m of surplus will be allocated to members immediately, with the potential for further increases over time.

Aberdeen will receive a minority share of any future distributed surplus, with the majority reserved for members.

The model also creates scope for greater allocation to productive assets, supporting government ambitions to encourage pension-backed investment in the UK economy.

The arrangement follows an extensive review of endgame options for the scheme, with LCP advising Stagecoach on its choices and on the commercial design of the deal.

It also follows Aberdeen’s decision earlier this year to run its own £2.6bn defined benefit (DB) scheme, unlocking part of its surplus to benefit both the business and members.

Indeed, Aberdeen argued that the arrangement "strengthens alignment" between trustee, sponsor and members, with the scheme’s strong funding position meaning no material impact on the group’s capital position.

The firm added that it demonstrated rising interest in ‘run-on’ solutions among well-funded DB schemes reviewing their endgame strategies.

Aberdeen Group CEO, Jason Windsor, described the deal as “a landmark agreement”.

“This delivers significant value to Stagecoach’s scheme members, and to Aberdeen,” he claimed.

“The scheme’s strong funding position allows Aberdeen to take on responsibility for managing the fund and provides the opportunity to enhance member benefits by investing in productive assets.

"We believe in the run-on model for well-funded schemes, having already taken this approach for our own scheme.”

SGPS trustee chair, John Hamilton, noted that the trustee’s priority was securing the best long-term outcomes for members.

“With a significant starting surplus and prospects for sustained growth, our goal was to run on the scheme to provide better inflation protection and higher pensions under secure arrangements,” he said.

“Aberdeen’s experience, their belief in the need for growth and productive assets, and the strength of their pensions and investment teams meant we were able to develop an innovative solution to deliver improved outcomes.”

Echoing this, Stagecoach Group CFO, Bruce Dingwall, stressed that the deal provides clarity for the business while strengthening the scheme’s long-term position.

“For Stagecoach, this transaction gives us a clean break from the large DB scheme, supporting our objective of simplifying our business,” he said.

“We are delighted that members can benefit from a strong sponsor and the expectation of further improvements over time.”

LCP, which advised Stagecoach throughout the process, said the deal reflected a growing trend in the DB market.

LCP partner and lead adviser, Steve Hodder, said: “We are delighted to have helped Stagecoach reach their pensions destination with an innovative solution expected to deliver a meaningful boost for 22,000 members.

"This highlights a continuing trend of well-funded DB schemes being viewed as an asset for both members and sponsors, in the right circumstances.”

LCP partner and head of corporate consulting, Gordon Watchorn, added: “This is an excellent and innovative solution given the specific combination of circumstances of this scheme.

"At a time of considerable change for DB pensions, this case reinforces the value of bespoke and creative advice to secure the best outcome for clients,” he concluded.

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