AFS 2025 sets out regulator expectations

A shift in focus by pension scheme trustees from deficit recovery to endgame planning is highlighted as the major expectation of the Pensions Regulator (TPR) in its recently published Annual Funding Statement (AFS) for 2025.

The AFS contains information for scheme trustees and employers who are undertaking their first valuation under the new Defined Benefit (DB) funding code, which applies to schemes with valuations being carried out with effective dates on or after 22 September 2024.

The AFS also reiterates TPR’s backing for government proposals regarding using DB pension scheme surpluses.

Schemes in surplus

Giving details of the UK pensions industry’s state of health, 54 per cent of DB schemes are in surplus on a buyout basis, rising to 76 per cent on a low dependency basis and 85 per cent on a technical provision basis, according to the AFS.

However, the regulator cautions that scheme trustees should keep in mind the potential for heightened trade and geopolitical uncertainty and understand any risks to their scheme’s investment strategy and employer covenant.

Commenting on this year’s AFS, David Walmsley, TPR’s Director of Trusteeship, Administration and DB Supervision says: “With improved funding levels, three quarters of schemes are in surplus on a low dependency basis, we expect a shift in focus from repairing deficits to endgame planning.”

DB funding code

The 2025 AFS is the first following the introduction of the new DB funding code, which set out guidance and expectations on how schemes should comply with funding and investment strategy requirements.

This year’s statement provides clarifications on how trustees should assess and monitor the employer covenant, which is a key part of the funding code.

Government proposals on surpluses

TPR has previously expressed its support for government proposals regarding the use of surpluses in DB pension schemes to support economic growth and improve saver outcomes and this was reiterated in AFS 2025.

David Walmsley says: “Trustees should also be considering how they would respond to potential requests from employers to release some of their scheme’s surplus. They should adhere to current legislation and scheme rules regarding funding surpluses. We await details on the government’s plans to legislate in the upcoming Pension Schemes Bill.”

Submitting valuations to the Pensions Regulator

The regulator also reveals that it will soon be launching a new ‘submit a scheme valuation’ digital service, including a statement of strategy spreadsheet. All information for valuations with effective dates on or after 22 September 2024 must be collated and submitted by schemes using these tools.

MHM’s view

Unsurprisingly the AFS continues to highlight the Pensions Regulator’s desire to see thorough and effective planning for the finances of DB pension schemes, and for many closed schemes there must now be a focus on an endgame solution.

Readers may wish to check out this month’s article from First Actuarial on preparing for triennial valuations under the new DB funding code, available here.

Since the AFS was published, the government has published the 2025 pension schemes bill, which includes proposals to grant trustees greater flexibility to modify scheme rules, including the ability to release surplus funds to employers. We will provide a review of the bill in our next issue but, at this stage, our view remains that this is only likely to be cost-effective for larger schemes, perhaps those with assets above £200 million.

To speak to us about this or any other issue affecting your scheme, please contact:

Andrew Scopes

Director, MHM Trustee Services

E: andrew.scopes@sandccarsalesharrogate.co.uk

T: 07860 400645

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