The Pensions Regulator (TPR) has said it wants to support innovation while ensuring appropriate risk levels, amid expectations of further defined benefit (DB) scheme endgame developments due to strong funding positions.

In a blog, TPR executive director of market oversight, Ben Gunnee, noted that insurer buyout was historically seen as the best way to pay promised benefits and act in members’ best interests.

However, while he acknowledged this may still be the preferred approach for many schemes, new endgame models and strategies were resulting in trustees reassessing their long-term objectives and considering whether there is potential to release surplus for members and sponsors.

The Pension Schemes Act 2026 has introduced greater flexibility around releasing surplus, and the regulator said it would be working with the government to ensure the regulatory environment is robust and able to response to a variety of market conditions.

“We are already seeing how improvements in funding are affecting trustee thinking and market innovations,” Gunnee stated.

“Any new approaches must provide both security and value to members. We expect trustees, sponsoring employers and their advisers to engage with us early to clearly define how any proposal under consideration delivers a good outcome for members.”

He highlighted the recent ‘run-on’ transaction between the Stagecoach Group Pension Scheme and Aberdeen, which used Flexible Apportionment Arrangement (FAA) regulations to enable the asset manager to assume responsibility for the assets and liabilities of the DB scheme.

The trustee approached TPR to discuss the statutory funding tests for use of the FAA and confirmed to the regulator they were satisfied these tests were met.

Earlier this month, Pensions Minister, Torsten Bell, confirmed that the Department for Work and Pensions (DWP) intended to consult on whether existing FAA regulations should be strengthened, as while the deal complied with existing legislation, it was undertaken in a manner not envisaged when FAAs were introduced.

“Ahead of any changes to regulations, we recognise the need to provide clarity and maintain confidence in the market,” Gunnee stated.

“We need to consider an interim approach to transactions involving FAAs that present similar characteristics to the Stagecoach transaction.

“We will continue to work closely with the DWP to ensure that the regulatory framework evolves in step with the market.”

Commenting on the blog, Society of Pension Professionals DB Committee chair, Jon Forsyth, said: "The SPP welcomes TPR's recognition that improving funding levels have expanded the range of viable endgame options available to DB schemes.

“We support the principle that trustees should consider the full spectrum of solutions and make decisions in the context of their scheme’s circumstances.

“TPR’s surplus guidance, due out later this year, will be important in supporting decision making in this area and in particular we are hopeful that it covers wider interaction between endgame planning, surplus utilisation, covenant assessment and member outcomes.

“It’s also important that the regulatory framework remains neutral and supportive of different solutions, allowing trustees to select the option most appropriate to their scheme's circumstances and objectives provided they have taken appropriate advice and been through a proper process."

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