Pension scheme endgame options have been much talked about in the last year or two, and we are now seeing legislative changes that support a wider range of options than simply buying scheme liabilities out with an insurer and winding the scheme up. For companies sponsoring defined benefit (DB) pension schemes this gives rise to new opportunities, and for investors who might, historically, have avoided acquiring or investing in companies with DB pension schemes, the risks (and benefits) of doing so may now look rather different.

The Changing World of Pensions Endgame

For many years now the increasing funding demands of DB pension schemes, coupled with the risk of volatility arising from economic conditions, have meant that finance directors and GCs have looked forward to the day their DB scheme could be bought out with an insurer and wound up. This was in practice the only way a solvent employer could be freed from its pension scheme liabilities before the scheme came to a “natural” end when its last pensioner died. The problem was, however, paying an insurer to provide pension benefits is generally more expensive than providing those benefits from an occupational scheme and so, while an insurer buyout brought with it the benefit of certainty, this was not always an affordable option, especially given the long period for which most pension schemes have had significant deficits.

This has, more recently, changed and as a result of economic conditions, careful investments by pension schemes and keener insurer pricing meaning many more pension schemes are actually in surplus – on their own funding basis if not on a full buyout basis. As a result, pension schemes are now in many cases very much better funded than they might have been five or ten years ago. For many schemes, insurer buyout remains the aim, but others, with the support of their sponsoring employers, will be considering some of the other “endgame options” which are in the market. These alternatives are gaining traction, supported by changes in law made by the Pension Schemes Act 2026.

Run-On and Surplus Generation

While pension schemes are ongoing (ie, still being operated to provide benefits for members) current legislation makes it difficult for any surplus within the scheme to be released from the scheme and paid to the employer requiring, in particular, that the scheme is fully funded on a buyout basis and that the release of surplus to the employer is in members’ interests.   

As a result, releases of surplus – other than where a scheme is winding up – have been extremely rare. The government has decided that these requirements ought to be relaxed to a degree, primarily with the aim of unlocking some of that surplus before schemes are ready for a full insurer buyout, so that released capital can be put to use in the wider economy (or at least applied in ways that benefit the sponsoring employer’s business). 

New Surplus Flexibility

The Pension Schemes Act will therefore allow trustees either to amend their scheme rules by resolution to introduce a power to pay surplus to the employer where none currently exists, or to remove or relax any restrictions in the scheme rules that might otherwise prevent or limit the trustees’ ability to pay surplus to the employers. Surplus, for this purpose, is to be assessed on a low dependency basis. It is important to note that these new flexibilities are optional and are only available where the scheme is ongoing. 

Where a scheme’s rules do not already contain an unrestricted power for the trustees to release surplus to the employer, its trustees will need to decide, with the benefit of legal advice, whether it is appropriate for them to amend their scheme rules in this way. Even where there is an existing power to pay surplus from the scheme to the employer, or trustees are willing to exercise the new statutory power to incorporate one, there is a process to be followed before surplus can be paid out to the employer. This process is set out in the Pension Schemes Act and draft regulations which are not expected to come into force until 6 April 2027.

This new regime will provide for greater flexibility than exists at present, although trustees will inevitably need to consider carefully whether a release of surplus may risk member security. This may in turn depend on the strength of the financial support the scheme’s employer is willing and able to give on an ongoing basis, and whether the employer is willing to put in place any mechanism to protect against “downside risk”. In this context, it is worth noting that the government has not specified how any surplus release should be framed, so trustees will be looking to agree an approach that they consider is appropriate in light of the circumstances of their scheme, which may include some element of surplus sharing between the employer and scheme members. 

For sponsoring employers, while this change does not automatically mean they will be able to receive a payment of surplus from their scheme before it is bought out and wound up, it does demonstrate a real change in attitude to surplus release on the part of the government and the increase in options for those deciding the futures of their DB pension schemes. Running a scheme on, instead of buying out – or running on for an extended period before buyout – may become a more attractive option where scheme surplus will be shared with the employer in the meantime, and in some cases the prospect of running a scheme on with the aim of generating surpluses that can be shared is now being discussed. 

Surplus Extraction

Surplus release to employers where a scheme has bought out and is in winding up is generally considered somewhat simpler than surplus release where a scheme is ongoing, not least because once a scheme’s liabilities have been secured in full, the surplus has crystallised and cannot be significantly eroded by changes in funding or scheme costs (which is not the case where a scheme is ongoing). There are no proposals to change this position at present, but the possibility of a surplus release to an employer is something employers (and investors) will want to consider when planning for their scheme’s endgame. 

This is particularly the case if the scheme rules “trap” surplus in the scheme, for example because there is no rule permitting it to be extracted once member benefits have been secured, or where the trustees are required to apply any surplus for the benefit of members. In other cases, trustees will have a discretion as to how to allocate surplus between members and employers. In any of these scenarios, it may be that the employer is keen to avoid generating a surplus in the first place and, if a surplus has arisen anyway, the employer may wish the trustees to use it to meet scheme expenses. Mechanisms are also being put in place by some schemes to facilitate the use of DB surplus to fund ongoing DC accrual for current employees.

The Rise of DB Superfunds

DB superfunds are consolidation vehicles which offer companies a means of transferring the liabilities of their DB pension scheme out of their corporate group and into the consolidation vehicle so that they are no longer borne by the company. The link between the scheme and company is severed, and in exchange an amount of “buffer capital” is provided by the superfund’s investors which essentially replaces – and may be preferable to – that lost employer covenant. In many cases, the employer may also need to provide some additional funding for their scheme, so that its assets are sufficient for the superfund to accept the transfer, but the amount required will generally be less than that which might be required to achieve buyout with an insurer.

As at the time of writing (September 2026) there is only one authorised superfund in operation, with more in the pipeline. The existing superfund (Clara) offers a “bridge to buyout”, whereby liabilities transferred into its occupational pension scheme trust are run on until such time as an insurance buyout becomes affordable, at which point a buyout takes place. Clara has transacted a number of times, taking on schemes of different sizes. Other superfunds are expected to offer an alternative model by running on (ie, retaining all assets and liabilities in the scheme indefinitely), and trustees who are considering making a superfund transfer will then need to consider which model is a better fit for their scheme and their members.

This rise in DB consolidation is supported by the Pensions Regulator and DWP, and this is reflected in the Pension Schemes Act 2026 which will bring the supervision and authorisation regime for superfunds onto a statutory footing (expected in force in 2028). Currently, the governance regime for superfunds is set out in guidance issued by the Pensions Regulator, and while the legislation covers much of the same ground as the guidance, there are some key differences. One of these is that the Pensions Schemes Act reduces the number of tests that must be met for a transfer to a superfund to take place so that it will no longer be a requirement that the scheme is not expected to be able to reach a buyout level of funding in the foreseeable future (which, according to the Pensions Regulator, usually means three to five years).

Superfund transactions must obtain clearance from the Pensions Regulator to go ahead, and superfunds must have a certain level of funding at all times, as well as having appropriate systems and processes in place to ensure that they are a well-run large pension scheme. These protections, along with due diligence undertaken by trustees and employers considering a superfund transfer, are intended to ensure that the regime is sufficiently robust to ensure members receive their benefits in full post-transfer.

A New Approach – the Aberdeen/Stagecoach Model

An alternative to transferring to a superfund emerged during 2025, in the form of a sponsor substitution transaction. This involved the replacement of the employer sponsoring a pension scheme (Stagecoach) with an Aberdeen group company so that the pension scheme was then “attached” to Aberdeen. This severed the link between Stagecoach and its (former) pension scheme and ensured that its liabilities in that scheme were transferred to and assumed by Aberdeen. This was backed by a wider plan to run the scheme on, with members sharing in any future surplus generated.

The parties used an existing mechanism provided for in law, known as a “flexible apportionment arrangement” under which employers and scheme trustees can agree that all of one employer’s liabilities to the scheme will be assumed by the other, subject to the trustee being satisfied as to that replacement employer’s ability to support the scheme. This is a mechanism that is usually used in the context of corporate restructurings, in which companies can, for example, be released from liability so they can be sold outside the group without the pension scheme, or so that they can be wound up. The Stagecoach/Aberdeen transaction is a new use for an old mechanism and is not without controversy. On one view, provided that the receiving employer offers a better financial strength with which to support the scheme compared to the outgoing employer (and, perhaps, compared to a superfund), such transactions ought not to be problematic.

The DWP has announced that it will review the rules applicable to flexible apportionment arrangements, with the pensions minister noting that, while the government wishes to encourage innovation, there is a “need to ensure the right legislative guardrails are in place”.

What Should Employers and Investors Think About When Considering a Pension Scheme’s Endgame?

There are now considerably more options for an employer considering options for managing DB pension scheme liabilities, but there are a number of things to consider.

The starting point is that all parties need to understand the relative options, and why one might be preferable to another. This will include considering factors such as the security for members offered by each option, the impact of the transaction (for example, on the company’s accounts) as well as the costs of the proposed transaction itself and whether each option delivers the company’s aims (such as terminating their obligations to their scheme or benefiting from any available surplus for a period or even generating further surpluses indefinitely).

The employer would also be well-advised to work with their pension scheme trustees to perform careful due diligence to ensure that the scheme benefits are properly understood and that scheme data is clean. This matters for the purposes of pricing any insurance or superfund transaction, but also because if there are errors in the scheme’s data or its governing documents, that could mean that a scheme is less well funded than previously thought and this could make a proposed transaction or surplus refund non-viable. Parties should take the time, in advance of any transaction, to prepare thoroughly including in preparing benefit specifications and undertaking data verification.

Skeletons in the Cupboard

Even with well-run schemes, endgame projects may expose historic issues that have remained dormant while the scheme is ongoing. As trustees and sponsors undertake due diligence, historical benefit changes are reviewed, administration practices scrutinised and decades-old documentation examined in a way that generally does not occur when schemes remain open and ongoing. Occasionally, defects in the scheme’s documentation may be uncovered.

Most of the time, those defects are relatively straightforward and can either be fixed or priced into a transaction. However, sometimes the defect is more serious and it can raise fundamental questions about the validity of benefit changes, the construction of scheme rules, or whether historic documentation accurately reflects the intentions of the parties involved. Uncertainty of this nature can be financially material.

Where issues cannot be resolved through advice alone, “remedial” litigation frequently becomes the mechanism through which certainty is obtained. That may take the form of rectification or construction proceedings to obtain the court’s ruling on the correct interpretation or indeed the correction of historic scheme documentation.

Fortuitously, cases of this nature have become more streamlined and frequently, remedial proceedings can be expedited through court using a process called summary disposal, which avoids the time and cost of a contested trial. From the scheme sponsor’s perspective and the GC’s perspective, this streamlined process will save them both time and cost. 

Litigation Risk for Ongoing Schemes in an AI World

When it comes to pension schemes litigation risk is not confined to historic drafting issues.

Any ongoing pension vehicle (whether DB or DC) and no matter how well run, is exposed to pension scheme complaints (or IDRPS as they are often termed (referring to the Internal Dispute Resolution Procedure under which many complaints are brought)), often as a result of minor administration errors, delays and miscommunications. 

Such complaints are on the rise. It appears this is being driven by the increased usage of AI by complainants, both by individuals and in some cases by their appointed professional advisers. Recent commentary from the Pensions Ombudsman’s office highlights a rising demand for its services, which has led to its office launching an internal AI pilot.

Historically, preparing a complaint to an Ombudsman (whether that be the Pensions or the Financial Ombudsman), required some effort on the member’s part but that has all changed. The ability to generate tailored submissions at speed significantly lowers the barriers to bringing a complaint. Members who previously may not have pursued a dispute now have ready access to AI tools (such as ChatGPT) that can help them challenge administrative decisions, benefit calculations and trustee actions.

That does not mean every complaint will have merit. However, it is likely to mean more complaints being generated at speed and a greater willingness among members to challenge outcomes. This matters because many disputes that would once have remained isolated administrative queries can now develop into formal complaints, often involving detailed legal arguments which then require detailed responses. For GCs and scheme sponsors, this may impinge on legal spend and resource planning and, while unlikely to be determinative, is a factor to consider when assessing endgame options.   

What Next?

The expanding range of endgame options gives sponsors and investors greater scope to manage DB liabilities, release value and support wider corporate objectives. 

Boards, GCs and finance teams should therefore approach pensions strategy as a live corporate risk/opportunity: testing the options early, resolving historic defects and ensuring that governance and dispute-readiness keep pace with commercial ambition.