DB Pension Scheme Funding: What the Pensions Regulator’s 2026 Funding Statement Means for You

The Pensions Regulator (TPR) has published its 2026 Annual Funding Statement. While targeted at DB schemes undergoing valuations with effective dates between 22 September 2025 and 21 September 2026, the statement contains important messages for all DB schemes. Here are the key points trustees and employers need to know.

The Current Funding Position

The overall funding picture remains strong:

• Around 90% of schemes are in surplus on a technical provisions (TPs) basis;
• About 80% are in surplus on a low dependency basis; and
• Roughly 60% are in surplus on a buy-out basis.

That said, TPR sounds a note of caution. Recent trade and geopolitical tensions have increased uncertainty around interest rates, inflation, and global economic growth, and volatility has risen sharply. If this continues, it could start to affect scheme funding positions.

From Deficit Repair to Endgame Planning

With most schemes now well-funded, TPR expects the focus to shift from deficit recovery to endgame planning. Valuations should increasingly be used a strategic tool, helping trustees develop or refine their endgame plans and assess progress against long-term goals, rather than simply working out how quickly a deficit can be closed. TPR’s guidance on new DB models and options will support trustees as they weigh up their endgame choices (for more information, see our Legal Update, DB Pension Endgame Options – Pensions Regulator Guidance.

What About Surplus?

TPR expects schemes that are running on to think carefully about their approach to surplus. In light of the new rules on surplus release in the Pension Schemes Act 2026, TPR plans to publish a statement setting out its early views on the factors trustees should consider around surplus release. TPR will consult later on more detailed guidance to accompany the legislation once it comes into force (expected in 2027).

Fast Track vs Bespoke: Which Route?

TPR estimates that around 80% of schemes should be able to meet the Fast Track parameters; schemes following this route are required to provide less information in their statement of strategy. Experience from the 2024/25 valuation cycle supports this expectation. No changes are being made to the Fast Track parameters for the 2025/26 cycle, although TPR recognises that market conditions have shifted significantly since those parameters were set in March 2023. If current conditions persist, TPR may look to update the TPs parameters for the 2026/27 cycle. Schemes taking the Bespoke route will need to provide more evidence in their statement of strategy, but both approaches are equally valid.

What Funding Strategy Should Schemes Adopt?

As in previous years, TPR has grouped schemes into categories based on their funding level, each with a different strategic focus:

• Group 1A – Well above low dependency (110%+ funded): These schemes should be finalising and implementing their endgame, whether that is buy-out or run-on.
• Group 1B – At or just above low dependency (100% to 110% funded): These schemes should be planning their endgame. Some limited investment risk may be appropriate to reach the chosen solution.
• Group 2 – Above TPs but below low dependency: The priority is to maintain progress towards the low dependency target, with ongoing monitoring and management of downside risks.
• Group 3 – Below TPs: The focus should be on closing the deficit as quickly as the employer can reasonably afford.

Navigating the New Funding Regime

As highlighted in last year’s Annual Funding Statement, the new regime requires a more joined-up valuation process, with early and ongoing dialogue between trustees, employers and advisers. Trustees should start by considering the scheme's long-term objective and journey plan before deciding whether to follow the Fast Track or Bespoke route. Importantly, statements of strategy should be treated as "live" documents that evolve as endgame plans are refined and drive the valuation process, rather than being written once the valuation is complete.

TPR has also addressed some frequently asked questions about the new regime in three appendices to the statement. Appendix 1 covers employer covenant assessment and monitoring. Appendix 2 deals with how to assess the level of supportable risk. Appendix 3 looks at the low dependency funding basis and low dependency investment allocation.

Other Issues on TPR’s Radar

TPR highlights several areas of ongoing concern for trustees and employers:

• Employer covenant: As funding positions improve, covenant assessments should shift towards ongoing monitoring and managing downside risks. A more detailed assessment may still be required where funding levels are weaker, the scheme is large relative to the employer, or high levels of risk are being taken.
• Cyber risk: Cyber incidents are an area of increasing concern, as they can materially affect the employer covenant by disrupting and damaging business activities, operations, and supply chains.
• Climate and sustainability: Climate change and broader sustainability issues, including transition and physical risks, remain relevant factors for trustees to consider.
• Macroeconomic uncertainty: Trustees should ensure near-term liquidity and cash flow requirements are securely covered, while maintaining a resilient investment strategy.
• Data quality: Member data quality is crucial for pensions dashboards and day-to-day scheme administration. TPR has issued guidance on data quality, and a comprehensive review of data requirements for the DB and hybrid scheme return is underway, with changes expected from the 2027 scheme return onwards.
• Virgin Media case: TPR has published guidance for trustees and employers on resolving issues arising from the Virgin Media case regarding the validity of certain past amendments to contracted-out rights (for more information, please see our Legal Update, Virgin Media – Pensions Regulator Guidance for Trustees on Remediation. The remediation measures in the Pension Schemes Act 2026 provide a route to resolve these issues.

What Should Trustees and Employers Do?

The overall message from TPR is one of cautious optimism: most schemes are in a strong position and should be turning their attention to endgame planning rather than deficit repair. But trustees and employers should not be complacent. Market volatility, cyber threats, and climate-related risks all demand continued attention. And the message on statements of strategy is clear – they should be living, breathing documents that actively shape the valuation process, not paperwork completed after the event.

How Can We Help?

In addition to advising on the 2026 Annual Funding Statement, Mayer Brown can advise trustees and employers on:

• The changes to the statutory funding regime that came into force in 2024 and TPR’s new DB funding code;
• Scheme funding packages, including contribution ratchet mechanisms and alternative funding solutions such as contingent assets, asset-backed contribution arrangements, and escrow arrangements;
• Legal aspects of employer covenant assessment and monitoring processes, including information-sharing protocols;
• Investment governance processes;
• Scheme buy-out, including preparations for buy-out;
• Other endgame strategies, including run-on and transfer to a DB superfund; and
• Putting in place a policy on release of surplus.