Rising gilt yields since 2022 have pushed most UK defined benefit schemes into surplus, and the conversation with scheme sponsors has shifted from closing a deficit to choosing an endgame. What corporate advisers need to know about the funding trend and the three routes now on the table.
In reading this article you will understand:
- Why so many UK DB schemes have moved into surplus since 2022, and what the latest PPF and tPR figures say about the scale of that shift.
- The three broad endgame routes now available to a well-funded DB scheme, buyout, run-on and superfund consolidation, and the trade-offs between them.
- What to ask a corporate client whose DB scheme has moved into surplus, and when to bring in specialist DB advice.
UK defined benefit schemes are, in aggregate, better funded than they have been in a generation. The Pension Protection Fund’s PPF 7800 index put the aggregate DB surplus at £271.3 billion as at 31 July 2026, published in its August update, a funding ratio of 133% across the roughly 4,800 schemes it tracks. The Pensions Regulator’s own data, drawn from scheme valuations as at 31 December 2025, tells the same story from a different angle: 90% of schemes were in surplus on a technical provisions basis, 80% on the more cautious low dependency measure, and 60% even on a full buyout basis, the cost of transferring every promised benefit to an insurer. For corporate advisers whose main relationship with a client is its DC scheme, that shift is worth understanding. A sponsor whose legacy DB scheme has moved from a funding headache to a balance sheet asset is having a very different conversation with its trustees, and increasingly wants its adviser’s view on where it is heading.
How Funding Levels Turned Around
The improvement has a clear cause. DB liabilities are valued as the present value of future pension payments, discounted using assumptions tied closely to gilt yields. When gilt yields rose sharply from 2022, first through the market reaction to that autumn’s mini-budget and then through the Bank of England’s subsequent rate rises, the value placed on those future liabilities fell substantially. Many schemes had already hedged much of their interest rate and inflation risk through liability-driven investment strategies, so scheme assets moved down in step rather than being left exposed on one side of the balance sheet. The net effect, across the roughly £1.1 trillion UK DB universe, was a funding ratio improvement even where a scheme’s assets had fallen in absolute terms. Long-dated yields have gone higher still since then, with the 30-year gilt reaching 5.79% in May 2026, and funding levels have held, helped by deficit-reduction contributions paid in during the earlier, lower-yield years. The result is a sector where surplus, not deficit, is now the normal position, and where trustees are increasingly being asked what a well-funded scheme is actually for.
Three Routes Now on the Table
A sponsor sitting on real surplus has three broad choices, and the vocabulary is worth knowing even if you never work on the DB side directly.
Buyout is the traditional endgame: trustees pay an insurer a premium to take on the scheme’s liabilities in full, and the insurer becomes responsible for paying members’ pensions from that point on. It is expensive but delivers certainty, and it is currently the busiest route in the market. LCP forecasts UK buy-in volumes of £40 billion to £55 billion in 2026, with the top of that range beating the annual record of £49.1 billion set in 2023; Legal & General found 49% of surveyed schemes are already fully funded on a buyout basis, and the wider risk transfer market recorded over 350 transactions worth around £40 billion in 2025 alone.
Run-on is the opposite decision: trustees and the sponsor keep the scheme going rather than buying out, continuing to pay members’ pensions from the scheme’s own assets, potentially for years. It has become a good deal more attractive now the Pension Schemes Act 2026 has put a statutory framework behind releasing scheme surplus to the employer, with regulations expected to bring it into force from April 2027 and a separate tax change opening up direct payments to members. Where a scheme’s DB and DC sections sit in one trust, surplus can also fund DC contributions, though that route comes from the scheme’s own rules rather than from the Act. The framework is covered in depth in a separate Benefits Guru Insight, so this piece won’t repeat its mechanics. Legal & General found 57% of DB schemes are actively considering surplus extraction during run-on or at buyout, a sign the two routes are increasingly weighed against each other rather than run-on being treated as the fallback while a scheme waits to afford insurance.
Superfund consolidation is the newest and smallest route: the scheme transfers to a commercial consolidator, currently Clara Pensions in practice, which takes on the DB liabilities backed by external capital rather than an insurer’s balance sheet or continued sponsor support. It suits schemes below full buyout funding whose sponsor covenant isn’t strong enough to support a long run-on. Barnett Waddingham puts around two-fifths of UK DB schemes, those holding £50 million to £2 billion in assets, inside the size band a superfund could serve, worth roughly £380 billion between them. Its own estimate of realistic candidates is far smaller: about 5% of schemes, or £50 billion, today, rising towards 22% and £180 billion under a more permissive framework. The market remains very small in transaction terms.
What Should Drive the Choice
There is no single right answer, and picking one isn’t the adviser’s job. The questions that drive the choice, though, are fairly consistent. Employer covenant strength matters most: a strong, cash-generative sponsor can support run-on’s residual risk in exchange for future surplus, while a weaker sponsor may prefer buyout’s certainty, or find a superfund a better fit if it can’t fund a top-up to reach full buyout funding on its own. Scheme size matters too, since buyout pricing and superfund eligibility both scale differently for large and small schemes. Trustees are weighing member outcomes explicitly too. Buyout carries insurer solvency backing and, once policies are in members’ own names, Financial Services Compensation Scheme protection; a well-governed run-on can, under the new surplus rules, improve what members receive over time. The surplus-release framework is only one input into that decision, but an increasingly significant one, since it changes what run-on can offer a sponsor beyond simply deferring the buyout question.
What It Means for Advisers
None of this sits squarely in a DC specialist’s brief. But a client’s DB endgame decision rarely stays contained to the DB side. A sponsor deep in a buyout project is spending significant finance and HR time on it, time that can crowd out attention to the workplace pension and wider reward strategy an adviser is there to support. A sponsor considering run-on with surplus extraction may be looking at using some of that surplus to fund DC contributions for the current workforce, a useful conversation for a DC adviser to be part of early rather than hearing about after trustees have decided. And a sponsor’s choice of endgame route is itself a signal about its financial priorities and risk appetite, worth understanding regardless. The practical step is a small one. When a client mentions their DB scheme has moved into surplus, ask which of the three routes trustees are leaning towards, and bring in specialist DB advice once the answer starts to bear on decisions you are responsible for. The deficit-repair conversation that dominated these relationships for two decades is fading. The endgame conversation replacing it is one every corporate adviser should at least be able to start.
Things to reflect on for CPD
- Do you know whether your DB scheme sponsor clients are funded above low dependency, and if so, whether trustees have started an endgame review?
- Which of your clients running a DB scheme alongside a live DC arrangement might benefit from an early conversation about the endgame route trustees are considering?
- How would you explain the difference between buyout, run-on and superfund consolidation to a client who has only ever heard the term buyout?
- What’s your process for bringing in specialist DB advice when a client’s endgame decision starts to bear on the DC scheme or wider reward strategy you advise on?
