The first half of 2026 has been marked by a partial clearing of the mists surrounding endgames for UK defined benefit (DB) pension schemes looking to de-risk.
The Pension Schemes Act received Royal Assent earlier this year and regulators offered further guidance on superfunds and surplus sharing, giving members and trustees more certainty over the status of alternatives to bulk purchase annuity (BPA) deals. Meanwhile, insurers received more concrete indications of how funded reinsurance will be regarded by market overseers.
With the prospects of more pension risk transfer (PRT) options, transactions so far this year have been confined to smaller schemes as the larger ones wait for final details on this expanded range of choice.
“I wouldn’t say there are any real blockers to schemes going ahead with transactions, but there are quite a few industry and regulatory developments to play out,” said Matthew de Ferrars, Pensions Partner at law firm Pinsent Masons.
“My sense is that quite a few of the bigger schemes have been pausing their de-risking plans while they weigh up their options, particularly run-on and release of surplus.”
The Act gives DB pension schemes easier access to surpluses that sponsors can use to boost member benefits or reinvest in the company (or both). That’s now possible for a larger number of schemes as rising interest rates in the past few years have lifted their funding positions; according to LCP, about 55% of schemes are at buy-out levels of funding, up from 43% the year before.
The details about how surpluses can be extracted and used are due to be published early next year after industry consultation and appetite for run-ons appears to be high: A separate LCP survey this year found that 90% of schemes polled in a webinar said they intended to release surplus under the new flexible regime.
The Act is also seen as having opened the way for the creation of more superfunds with the codification of the structures’ operating rules and the removal of one of the eligibility tests that had placed impediments on their formation.
With details again being hammered out, and due for publication in 2028, the move could see new funds join the existing Clara Pensions superfund, which saw a fifth scheme add its members and liabilities in April. A second fund, TPT’s run-on structure, applied for a licence with The Pension Regulator (TPR) in 2025.
Last year’s surplus-sharing deal that saw Stagecoach Group Pension Scheme offload its pension risk to Aberdeen Group further added to the list of end-game options and highlighted innovation in the market that could provide more PRT vehicles.
“I think there will be more of that,” said James Mullins, Partner and Risk Transfer Specialist at Hymans Robertson, noting that the regulator and pensions minister had said they would look into the suitability of such deals.
“I think that option will remain viable. They might tighten up some of the requirements or insist that you get clearance from TPR, which would be a sensible change.”
The trend towards smaller-scheme transactions continues from last year when aggregate deal value dropped to £38.1bn but more transactions were completed than any year before. This growth has left an estimated 500 schemes in the post-transaction stage working towards a buy-out in the next few years, according to Hymans Robertson.
Another continuing characteristic of the UK PRT market is the forging of new innovations by insurers to win business in a competitive market that TPR said could bring between £200bn and £400bn to market over 10 years.
With bottlenecks building in the post-transaction space, the 10 insurers in the PRT market have been offering to take on more of the responsibilities of administrators to bring bought-in schemes to buy-out faster.
According to Hymans Robertson, several insurers are providing data cleansing and guaranteed minimum pension equalisation services. These are two critical stages in the road to a scheme’s wind-up that are time-consuming and can contribute to wind-ups taking 18 to 36 months to complete after a buy-in.
Insurers are also investing in artificial intelligence applications to accelerate the process, the report said. They are also bolstering member experience to attract more schemes, something that resonates not only after wind-up.
“Member experience with the insurer post buy-out is clearly important, but the really key thing that people don’t always think about is good member experience on the transition to buy-out,” de Ferrars said.
Potentially clouding insurer appetite for PRT deals, however, has been the regulatory hard-line taken against funded reinsurance strategies, which help capital providers offset longevity and investment risks that they take on with BPA deals.
In its CP8/26 consultation paper, the Bank of England’s Prudential Regulation Authority (PRA) proposed increasing the capital buffers insurers must put aside to offset the cost of any reinsurance deal defaulting.
The PRA is acting out of concern that funded reinsurance has given rise to “misaligned incentives” and “underestimated risks”. The overall impact is difficult to predict and may have a slight impact on pricing as funded reinsurance helps insurers offer more competitive deals.
Buoyancy in the PRT market and the highly competitive pricing environment may yet be tested in other ways. Insurers have amassed capacity of around £60bn but demand from schemes is a little over half of that, at £35bn, said Mullins.
“There’s a big disconnect between what the insurers would love to do if there was more demand coming through, compared to what’s actually coming through,” he said.
“That’s creating some challenges for the insurers and in particular, it’s creating a very highly competitive market.”
Mullins attributes this to the decline in big-scheme deals. Last year, there were only two transactions that exceeded £2bn, and most of those completed this year have been in the small-to-medium range, according to Standard Life.
With deal volumes for the year forecast at between a moderate £40bn and a record £55bn, according to LCP data based on insurer feedback, he said it would only take another couple of big deals for 2026 to register the sorts of blockbuster volumes of 2023 and 2024.
“A lot of this is down to randomness – the randomness of when the big deals decide to make their move,” Mullins said.
