The Pensions Regulator (TPR) says it expects DB schemes to switch their focus from deficit recovery to ‘endgame planning’.

It set out the expectations in its latest annual funding statement, published today.

It reported that just over half of schemes (54%) are in surplus on a buyout basis, rising to 76% on a low dependency basis and 85% on a technical provision basis.

Endgame planning refers to the strategy that trustees and sponsors of a DB pension scheme will follow to provide benefits to members in the long term.

David Walmsley, TPR's director of trusteeship, administration and DB supervision, said: "With improved funding levels, three-quarters of schemes are in surplus on a low dependency basis. We expect a shift in focus from repairing deficits to endgame planning.

"Our new DB funding code equips schemes to make these changes and to better understand their funding strengths and risks.”

He added: "Despite healthy funding positions, trustees should keep in mind the potential for heightened trade and geopolitical uncertainty and understand any risks to their scheme's investment strategy and employer covenant."

TPR's new DB funding code set out guidance and expectations on how schemes should comply with funding and investment strategy requirements which came into force last November.

TPR has previously expressed support for government proposals regarding the use of surpluses in DB pension schemes to support economic growth and improve saver outcomes.

The Government said in January that it aims to 'unlock' DB pension surpluses.

Mr Walmsley said: "Trustees should also be considering how they would respond to potential requests from employers to release some of their scheme's surplus.”

Mark Tinsley, principal at Barnett Waddingham, said: “Encouraging trustees to proactively engage with these matters is a good suggestion, ensuring that all potential opportunities are carefully considered before locking a scheme into a risk transfer arrangement.”

Arabella Slinger, partner and head of covenant at XPS Group, said: “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.”

Alexa Mitterhuber, director of defined benefit solutions at Standard Life, said: "While many schemes may find themselves in a position of surplus, barriers to endgame still remain. Our research shows that almost half, 46%, of DB trustees cite market volatility as the single biggest challenge to pursuing their endgame strategy, and more than a quarter (28%) of trustees cite preparation as a key barrier to derisking."

In coming weeks, TPR said it will launch a new 'Submit a scheme valuation' digital service, including a statement of strategy spreadsheet. All information for valuations with effective dates on or after 22 September 2024 must be collated and submitted by schemes using these tools.

Guidance will also be published to support trustees considering the best option for their members as they plan their scheme's endgame, TPR said.