Asset performance driving funding gains
Alongside pricing improvements, rising surpluses continue to strengthen scheme balance sheets. XPS Pensions Group reported a £26bn increase in long-term funding surpluses over the year to June. On the PPF basis, surpluses rose by over £9bn in June alone.
Asset values have played a leading role in this trend. A 2.5% monthly rise in scheme assets during June outpaced a 2% increase in liabilities, supported by gains in overseas equities and stronger-than-expected economic data. Among schemes still in deficit, the aggregate shortfall shrank from £30.9bn to £28.7bn over the month.
Although XPS noted a modest £2bn dip in long-term surplus estimates during June, the broader trajectory remains positive. Funding levels are now comfortably above key thresholds for many schemes, supporting greater flexibility in strategic decision-making. This sustained improvement in scheme funding, supported by market movements and favourable insurer pricing, is creating attractive conditions for schemes with a clear endgame strategy. For those in a position to transact, the current environment offers a valuable window to reduce risk and secure member benefits.
Bulk annuity pricing at two-year high
The bulk annuity market entered the second half of 2025 with pricing at its most attractive level in over two years, according to Aon. Competitive pressure is a significant driver, with a record 11 insurers active in the market. This has contributed to improved terms and enhanced pricing for schemes considering a buy-in or buy-out.
Insurers have been able to take advantage of the market volatility earlier in the year, using short-term asset dislocations to support better pricing. In parallel, changes in insurer investment strategy have played a role. Many providers have shifted towards gilts, capitalising on narrower credit spreads and wider gilt spreads. This repositioning has made it easier for insurers to align their pricing models with the assets used to back annuity liabilities.
Readiness remains key to accessing value
While market conditions are favourable, they are not universally accessible. Insurer capacity remains limited and demand from pension schemes continues to be strong. In this context, schemes that are transaction-ready are most likely to secure competitive pricing and execution certainty. Readiness typically includes well-developed endgame plans, de-risked investment portfolios, completed benefit audits and robust governance arrangements. Trustees who can demonstrate a clear path to buy-in or buy-out, and who are able to move quickly through the transaction process, are more likely to attract insurer engagement and benefit from optimal pricing.
Strategic focus turning to surplus management
Improved funding has prompted many trustees to revisit their long-term approach. According to XPS, 76% of trustees are now considering the use of statutory override powers to access surplus. This could involve adjusting contribution requirements, enhancing member benefits, or supporting corporate objectives, depending on scheme priorities and sponsor circumstances.
At the same time, trustees are reassessing strategy in response to the evolving policy environment. The Department for Work and Pensions is consulting on the use of DB surpluses and scheme consolidation, while the Pensions Regulator has issued new guidance on long-term funding plans. The forthcoming Pension Schemes Bill is also expected to introduce further clarity on surplus management and the statutory framework for DB schemes.
Balancing progress with ongoing uncertainty
Despite the favourable backdrop, the outlook is not without challenges. Geopolitical developments, trade disputes and the prospect of policy changes in the Autumn Budget may all influence investment markets and funding assumptions in the coming months. While many schemes are well positioned to navigate this environment, decision-making will continue to depend on scheme-specific circumstances.
Luke Carter, Regulatory Consultant at Equiniti said,
“Schemes considering a transaction will need to balance the potential benefits of current pricing against the risk of delay. Those not yet ready to engage may find value in reviewing governance structures and preparing for future opportunities, particularly if surplus levels remain high and regulatory flexibility continues to develop. A clear plan, supported by timely execution, remains the most effective way to make the most of current market dynamics.”
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