TPR guidance – new models and options in DB pension schemes

TPR has published guidance for DB scheme models and options, including initial surplus release expectations. We provide an outline of the key considerations for trustees and employers.

On 3 June 2025, The Pensions Regulator (TPR) published guidance for trustees and employers on new models and options in defined benefit (DB) and hybrid pension schemes with case studies to assist decision-making.

The guidance covers traditional options such as buy-in and buy-out, the newer models such as superfunds and possible run on with surplus release that has seen a potential comeback after many years in the doldrums. It also runs through arrangements designed to improve financial outcomes, governance and member security. The guidance does not cover particularly new ground but does helpfully summarise the core features of each arrangement and the issues that TPR expects to be considered.

Having more choice means more to consider and TPR’s guidance should help schemes navigate the wide range of options that are now available for DB and hybrid schemes. Although TPR does not direct on options, it does have a clear message that trustees and employers should consider carefully the available models and which will best suit the scheme, take professional advice where necessary and keep matters under review. The guidance and TPR’s expectations will therefore form a central part of such deliberations. 

Overarching steps for trustees and employers

•  Regularly consider how best to provide member benefits. Not every option will be open to every scheme and arrangements will differ in terms of the “levels of financial, governance and member security support” they can provide. 
• Plans may need to be adapted in response to scheme circumstances, market and economic factors and options available.
• Obtain professional advice where appropriate, including around compliance with trustee fiduciary duties and taking into account that some options are ‘complicated and/or novel’. 
• The guidance does not ‘alter or displace’ trustee duties. As with any trustee decision, relevant factors need to be taken into account – TPR references the following factors as potentially being relevant (the list is not exclusive):
  • Risk/ reward &/ cost/ benefit of the different options.
  • Member service and experience.
  • Liquidity and cashflow management.
  • Conflicts and how interests align.
  • ESG factors.
  • Covenant support changes.
  • Option lifetime.
  • What would happen if the arrangement failed, both in terms of ‘recourse’ to employers/trustees and member protections.
  • Exit terms.
  The guidance also outlines other matters that trustees need to be aware of including liaison with the employer, the importance of considering the scheme’s strategy and understanding the governing provisions of the scheme, the need to adequately document decisions, entry and exit terms, and how the option might be adjusted.
• Assess the effect on the employer’s covenant.
• Understand how a given option impacts trustee control over the scheme. 
• Manage conflicts and understand what conflicts there might be in the arrangement.
• Carry out appropriate due diligence, risk management and stress testing of the option(s).
• Know whether an arrangement can be unwound and how this would be done.

Running on the Scheme including surplus

TPR outlines possible advantages of running on such as the possibility of higher pensions, keeping control over benefits, providing discretionary benefits, avoiding illiquid asset sale losses, buying time before insuring liabilities to obtain better terms as the scheme matures, funding employer DC payments from surplus and return of surplus to the employer. 

TPR warns that running on after reaching full buy-out funding should be a “conscious decision” with likely benefits for members.

Key considerations include the following 

• The experience and skills of the trustee board.
• Legal advice on trust terms. The trustees should also consider the balance of power in the governing provisions and whether they could wind up the scheme if this would benefit members.
• Whether the employer covenant is strong enough to meet risks of run-on. 
• The scheme’s funding position.
• Agreeing terms with the employer.
• Whether there will be enough scale to provide economies of scale.
• Cost management and delivering value for money.
• How the buy-out market or a superfund might evolve and whether the cost of these would reduce, for example, as the scheme matures.   

Perhaps the most awaited part of the guidance is the surplus section. This was slightly hampered by the fact that the Pension Schemes Bill provisions had not been published at the time the guidance was released. However, there was sufficient detail of the Government’s plans to allow TPR to set out its thoughts with a warning that the initial considerations in the guidance “will need to be reviewed once the final legislation is in place” and noting that it will produce further guidance after the legislation has been enacted (expected in 2027). Until then, the current legislative position applies including that a resolution must have been passed before 6 April 2016 to allow payment of surplus from an ongoing scheme and that funding must be at buyout level.

Issues referenced by TPR as requiring consideration on surplus include the following

• Consider how and when surplus should be distributed. TPR warns that it might not be in members’ best interests and could point to poor governance if a scheme is significantly overfunded for a material period without a plan to release surplus to members/ the employer.
• Trustees need to understand the scheme’s governing provisions on surplus. They also need to engage collaboratively with the employer.
• Produce a surplus release policy. An approach to surplus release should form part of a scheme’s long-term objective (under both the pre- and post-22 September 2024 funding regime). Now that the Pension Schemes Bill has been published, there should be enough detail to start drafting this policy (or review an existing one) and then finalise this in due course to reflect the final position under the new regime (unless of course surplus will be distributed before then in which case the policy will need to reflect the current position).
• Work out the funding level above which trustees would be comfortable releasing surplus.

Alternative arrangements summary

The guidance then covers the other main features and issues to consider of alternative arrangements that, depending on the type, can apply in both an ongoing and endgame scenario. The arrangements are categorised under governance (fiduciary management, accredited professional pension trustees & DB master and multi-trusts), financial (capital backed arrangements and superfunds) and insurance (longevity, buy-ins and buy-outs). 

Case studies – illustrative examples are provided

The guidance ends with a series of case studies on the different arrangements. 

TPR makes order allowing scheme in wind-up to distribute surplus to employer

TPR has also released its Determination Notice on a DB pension scheme in wind-up under which it has made an order under section 69(1) of the Pensions Act 1995 modifying the scheme to allow surplus that, without such modification, could not be ‘realistically’ released to be distributed to the employer. The scheme rules allowed the trustee to distribute surplus assets on wind-up to increase benefits but subject to the principal employer’s consent which was withheld. The rules did not permit an amendment to include a power to pay surplus to the principal employer.