DB pensions: What should be top of PM Burnham’s pensions agenda?

With a new Prime Minister taking office next week and major DB reforms now on the statute book, ministers have a clear opportunity to turn legislative ambition into practical change. LCP is urging the government to prioritise a stable, long-term framework for defined benefit pensions, with particular focus on surplus reform, endgame choice and innovation.

The Pension Schemes Act lays important foundations, but schemes now need clarity and consistency if more trustees and sponsors are to move from interest to action.

Pension scheme surplus

A key priority is surplus use for pension schemes. The Department for Work and Pensions has now issued draft regulations on surplus use alongside a statement from The Pensions Regulator. Jonathan Griffith, LCP Partner and Head of Endgame Innovation, said: “The publication of draft regulations on surplus extraction is a major milestone in turning the government’s ambitions into a practical reality, and the confirmation that the new regime is expected to be in force from April 2027 was very welcome. For the first time, schemes, sponsors and trustees have a much clearer picture of how surplus sharing could work, albeit we expect actual surplus sharing deals to be more varied beyond what is covered in TPR’s statement. We are already seeing growing interest from schemes exploring these new flexibilities. In a recent LCP webinar poll, nine in ten respondents said they were planning to consider releasing surplus under the new regime.

“The prize is significant. Based on LCP analysis, we estimate that FTSE 100 companies with UK DB schemes currently each have an average surplus of around £500 million. That represents a substantial pool of capital that could be put to productive use while maintaining strong member security. The next step must be meaningful engagement with industry, so that reforms are workable in practice and deliver good overall outcomes. ”

DB superfunds

LCP says another major priority should be the development of the legal framework for DB superfunds, with a substantial part of the Pension Schemes Act dedicated to formalising this.

Laura Amin, LCP Partner and Head of DB Consolidation, commented: “Although it was disappointing to see earlier this week the delay in the timeframe for delivering draft superfund regulations to Q1 next year, we expect the government will want to drive forward delivering the new rules. Their focus should be on creating a viable superfund market which works effectively for providers, their investors, trustees and sponsors and which can deliver attractive solutions for members with suitable long-term protections in place.

“With at least three new superfunds seeking assessment this year, we expect more superfunds to be operating from next year. This will mean greater competition with increased choice for trustees and sponsors as they consider the best long-term solution for their schemes.”

Endgame strategy

LCP also says that policymakers should continue to support innovation and choice across the whole DB endgame market, rather than favouring any single solution. Alongside surplus-sharing and superfunds, the buy-in and buyout market remains a highly successful part of the UK pensions system and will continue to be the preferred destination for many schemes, with 2025 being a record-breaking year for deals.

Charlie Finch, Partner in LCP’s Pension Risk Transfer team, commented: “The Pension Schemes Act has laid the foundations for greater innovation through surplus-sharing and a permanent superfund regime. The priority now must be implementing these reforms in a practical way to give trustees and sponsors a range of viable endgame options.

“It’s also pleasing to see wider industry innovation such as the “sponsor swap” solution where Stagecoach transferred their £1.2bn scheme to Aberdeen – the recent Ministerial statement rightly supported such innovation and we would encourage any regulatory intervention to be considered carefully to ensure an appropriate balance between facilitating innovation and maintaining suitable guardrails to protect members.

“At the same time, policymakers need to recognise the enormous success of the UK buy-in market, with the insurance regime providing robust long-term security at highly competitive pricing for schemes of all sizes. This will continue to be the endgame solution of choice for many schemes. The policy objective should not be to favour one approach over another, but to create a stable framework where insurance, superfunds, run-on and other innovative strategies can all flourish, giving trustees the confidence to choose the option that best meets their members' needs.

“Getting that balance right will be critical if the UK is to unlock the full potential of the £1 trillion plus of DB pension assets and create one of the world's most innovative and competitive pension endgame markets.”

Strategic decisions for schemes and sponsors

Looking more broadly across the pensions landscape, LCP says ministers should now focus on certainty, sequencing and meaningful consultation, given the wide range of strategic decisions currently facing trustees and sponsors.

Jon Forsyth, LCP Partner and Head of Pensions Developments commented: “There is a huge amount on Trustees’ and sponsors’ agendas, and some very important strategic decisions for them to make and changes to implement. On the DB side alone, we have major developments on surplus and endgame, more to come from DWP and TPR on Trusteeship, a way forward on the Virgin Media issue, PPF regulations to come, and changes to inheritance tax with additional administrative requirements. And that’s before we add the ongoing Pensions Commission and the big challenges with pensions adequacy, plus of course the myriad developments in DC and CDC.

“There are great opportunities to improve things for schemes, members, and sponsors, and we very much support the government pushing ahead with the current reforms. But it is equally important to take a long-term view when it comes to pensions policy, and to consult meaningfully with industry on any future changes. Working towards a more stable, long-term policy framework for pensions should be the name of the game.”