This blog is by Roger Higgins
Having spent decades working in pensions, I’ve seen cycles of surplus and deficit, but the current position – with over £200bn in combined scheme surpluses – feels fundamentally different. It forces a critical question: have we, as trustees, become “excessively prudent” and in doing so, will this be to the detriment of members?
My admiration for the Mineworkers’ and Stagecoach pension trustees has grown because they’ve answered this question boldly. Investing within appropriate regulatory guardrails, they’ve used investment returns, not just to secure benefits, but to improve them for members. Hearing John Hamilton detail the significant boost for Stagecoach members post-Aberdeen deal was a wake-up call. It should be one for all trustees of well-funded schemes.
The Pendulum Swing: From Surplus to Deficit and Back Again
My pensions career began in the late 1980s, amid the first “surplus regulations.” Back then, open schemes with high equity allocations faced a choice: contribution holidays, benefit improvements, or a tax bill. The concept of derisking to “lock in” a position was alien; the focus was on using returns to maintain pensions’ real value through discretionary increases.
Then the pendulum swung. Legislation improvements, accounting changes, and scheme closures shifted the narrative entirely. The PPF’s creation and the Pensions Regulator’s necessary focus on protection made “derisking” the mantra. Equities were swapped for bonds, deficits grew, and the singular goal became a slow, painful march toward insurer buyout.
The New Crossroads: Security is the Floor, Not the Ceiling
Today, funding levels have transformed. Security is now the baseline. The Stagecoach transaction has shown that for well-funded schemes the current frontier of fiduciary duties is member benefit improvement. This challenges the orthodox endgame playbook – especially for the largest 200 schemes who have the scale to run on.
As trustees, we must now grapple with four critical issues:
1. The Goal: Guaranteed Minimum or Meaningful Maximum? Is our duty merely to secure the contractual minimum, or—when a scheme is powerfully funded—to pursue the best possible outcome for members? Stagecoach chose the latter. For other strong schemes, not exploring this path is a choice in itself.
2. The “Reckless Prudence” of Investment Strategy. We’ve derisked to below insurer levels. But here’s the irony: if we transferred to an insurer tomorrow, they would likely re-risk the portfolio to generate profit. Why do we outsource the potential for upside to a third party? TPR guidance and guardrails are informative and so what’s stopping us from operating under a prudent, well-governed re-risking strategy for members’ benefit today?
3. The Silent Sponsor & The Forgotten Surplus. Many sponsors see de-risking as a way to remove balance sheet volatility. But this often means gifting hundreds of millions in future surplus to an insurer. Why aren’t more initiating surplus-sharing discussions? A transparent model (e.g., one-third to augment member benefits, one-third to the sponsor, one-third to enhance DC pots for the workforce) could align all stakeholders and create immense value.
4. The Unfinished Business: GMP Equalisation. This is a stark litmus test. How many schemes are knowingly underpaying members their legal due, with no clear remedy plan? It’s unacceptable. How can accounts be signed off without disclosing this? Fixing GMPe isn’t just administrative; it’s a core fiduciary duty and a prerequisite for any higher ambition.
A Call for a New Trustee Mindset
The Stagecoach deal isn’t an anomaly; it’s a beacon. It shows that for well-funded schemes, the historical “deficit mentality” must evolve into a “surplus opportunity” mindset.
I’m keen to hear from fellow trustees and professionals:
· How many boards are actively exploring benefit improvement strategies?
· Does a material surplus change members’ legitimate expectations of what we should deliver for them?
· Is it time to re-risk portfolios strategically, mirroring insurer economics for members’ gain?
· How do we move GMPe from the back burner to the top of the agenda?
The era of simply minimising risk is ending. The new challenge is to optimise outcomes.
My personal sentiment is that pensions consultants (including Roger and his colleagues) led the DB “industry” into a precarious position—particularly through the promotion of Liability Driven Investment (LDI) strategies, for which they seem to have made no apology.
Many consultants seem to me to lack the capability to navigate the way back.
This, combined with emerging operational issues following administrative outsourcing, has prompted very belated calls for a radical overhaul of the advisory and fiduciary landscape.
LDI Crisis and Misguided Strategy:
Pensions consultants, not trustees, heavily promoted LDI, a strategy designed to hedge against falling interest rates. However, this myopic approach often involved leverage that backfired when gilt yields rose, requiring urgent capital injections and exposing some funds to massive deficits.
The “surpluses” which have since emerged are down to higher gilt yields used by actuaries, but the 5-year and longer investment returns of many DB schemes are lower than these current discount rates.
No wonder many sponsors seem
to be unconvinced that these same consultant-led trustees can go forward from here.
The rush to “de-risk” schemes, encouraged by consultants, has led to a situation where many schemes are now grappling with higher governance costs, reduced flexibility, making the hope for increased retirement benefits harder to achieve.
Following the shift to targeting “buyouts” and outsourcing, which includes the introduction of professional trustees, sole trustees in some cases, means DB administrative capabilities have degraded.
A notable example is the admin transfers of the Civil Service Pension Scheme, which has resulted in “serious issues,” including long delays in payments for newly retired members, which is frankly scandalous.
Shortage of Expertise: Reports indicate a significant gap in the market for consultants with the right blend of strategic advice, technical expertise, and administrative understanding, leaving a “supply” issue for trustees.
Lack of Trust: Consumer trust in the pension industry is waning due to complex, jargon-heavy, and opaque products that are difficult for savers to understand.
As someone who has also been around in the DB pension arena since the 1980s I cannot but totally agree with both Roger Higgins and Derek Scott. If we move the mindset to consider opportunities rather than risks we find that DB pensions should offer the best prospects for both the Members and the Employer if carefully thought about and managed for the benefit of the Scheme with the courage to challenge advisor and regulator mindsets.
Along with John Hamilton (Trustee Chair of the Stagecoach Pension Scheme) I am talking about the 22 year experience of a shared ambition pension scheme at the Pensions UK East Midlands Group on the 26th February. The headlines of my talk are:
• Average salary DB scheme remained and remains fully open to all employees
• Employer and Employee Contribution Rates unchanged between 2003 and 2025
Recent Experiences:
– Accrued benefits of active and deferred members revalued by 10% p.a. in both 2024 and 2025
– Pensions in Payment received a 7% increase in 2025 replacing inflation related increases
– Employer’s Contribution rate reduced by 5% of pensionable pay in 2025
Current Funding Position and Future
– Technical Provisions funding rate of 171% at 31/3/24 valuation (current roll forward estimate 206%)
• Similar surplus on zero base Solvency basis
– Scope for further above inflation revaluations of accrued benefits plus (after 2027 valuation) further reduction in employer funding rate
– Pension Scheme Asset constitutes 68% of the Company’s Balance Sheet total and reserves
Thanks Peter. I must admit to going to the equivalent East Mids event to hear John Hamilton speak and I would like to repeat the trip on 26th Feb if I can get a place! You and John are a splendid pair.
LDI wasn’t always bad. It was/is a force for good when balance sheet risk is a key concern for the longevity of the sponsor and/or long-term run on is not a realistic option due to, say, an expected decline in covenant strength.
Schemes I have been involved in used it in moderation and I believe appropriately. Without it the balance sheet effect of the gilt rate could very easily have dragged the sponsor into administration despite it having a sound business model. Yes, the rapid change in rates in late 2022 caused some issues but the sponsor was strong enough to provide extra support to ease the cashflow issue. Yes, overall the banks not the scheme or sponsor were the winner financially but without LDI the scheme and sponsor would almost certainly no longer be here.