XPS responds to TPR’s new Annual Funding Statement

XPS responds to TPR’s new Annual Funding Statement

29 Apr 2025

TPR’s Annual Funding Statement highlights that despite a substantial improvement in scheme funding positions over the last twelve months, covenant assessment remains essential throughout a scheme’s journey, particularly given the heightened macroeconomic uncertainty that we are currently experiencing.

The Pensions Regulator (“TPR”) has published its 2025 Annual Funding Statement (“2025 AFS”). With only 15% of schemes now experiencing a deficit on a technical provisions basis, TPR is expecting most schemes to shift their focus from deficit recovery to endgame planning and intends to publish related guidance in the coming weeks.

Nonetheless, even where schemes are fully funded at or above a low dependency basis, TPR expects all schemes to continue to monitor the employer covenant to ensure it can support all risks. The 2025 AFS also provides further clarifications on the application of covenant guidance and the DB funding code, including in relation to assessing reliability and longevity periods, supportable risk and guarantees. We expect this additional guidance to help trustees of schemes going through their first valuation under the new regime.

Arabella Slinger, Partner and Head of Covenant at XPS Group said, “The 2025 AFS does not contain any surprises but highlights the relevance of covenant throughout a scheme’s journey, including in formulating an endgame strategy, as well as for schemes that have elected to go down the Fast Track route or have already reached low dependency. We appreciate the further clarification on the application of the funding code and covenant guidance and we look forward to helping our clients navigate TPR’s endgame guidance and the upcoming Pension Schemes Bill which is expected to provide clarification on the potential release of surplus.”