The Government, through its pensions minister has thrown down a challenge to pension schemes , sponsors and consultancies considering using FAA’s as Stagecoach Group Pension Scheme’s trustees have, moving from Stagecoach to Aberdeen as sponsor.
We are taking action to ensure the strong regulatory framework for Defined Benefit pensions remains effective as innovation develops, to manage future risks and protect member benefits
On 4 December 2025, a novel use of existing legislation led to an Asset Manager assuming responsibility for the liabilities and the assets of another employer’s defined benefit (DB) pension scheme.
This Government has since delivered the landmark Pension Schemes Act 2026 (the Act), introducing major reforms to UK occupational pensions, consolidating our fragmented pensions system into larger, better run, more secure schemes.
We want to encourage innovation that has the potential to benefit scheme members throughout the pension system and need to ensure the right legislative guard rails are in place for this to happen safely.
Flexible Apportionment Arrangements (FAA), the legislative mechanism used in this transaction, were introduced in 2012. They were designed to ensure that corporate restructurings, mergers, and sales do not cause employer insolvency events when there is an appropriate sponsor who can support the scheme. Whilst this transaction complied with the existing FAA mechanism it did so in a way not anticipated when the mechanism was introduced.
We therefore intend to review this area of legislation to ensure the regulatory standards and safeguards evolve and keep pace with the innovation we are seeing in the pension market. This is to protect members and the Pension Protection Fund, which is there to protect people’s pensions in the event of an employer insolvency.
The DB superfunds framework set out in the Act reflects the fact that superfunds operate schemes on a commercial basis and is designed to ensure that the interests of commercial providers are appropriately aligned with those of scheme members. This contrast highlights the importance of considering whether additional safeguards are required where other mechanisms, such as FAAs, are used in ways that similarly involve the commercial operation of DB pension schemes. We will therefore consult in due course on whether and how existing FAA regulations could be strengthened.
Where providers are looking to run schemes for profit, this can work in scheme members interests but regulatory standards and safeguards must evolve to match the new risks this creates.
A pension for bus workers finds a new way….
Defiance from Stagecoach Group Pension
There is a resilient rebuttal from Stagecoach Group Pension’s Chair of Trustees.
John Hamilton was the architect of this “novel” arrangement. Novel is not a word often found in business and when it is – it has strains of novelty and sits one step below “trying it on”.
Steve Hodder of LCP had this to say to Professional Pensions
The right safeguards
LCP advised Stagecoach on its transaction, a deal which it said was
“expected to materially boost member outcomes”.
The consultant said the minister’s comments that innovation should both have the potential to benefit scheme members and ensure the right guardrails are in place for this to happen safely “captured the ethos” of the process that sat behind the transfer of the Stagecoach Group Pension Scheme to Aberdeen.
LCP partner Steve Hodder led the firm’s advice to Stagecoach. He commented:
“We are supportive of having the right pragmatic safeguards in place to support the interests of scheme members, which mirrors how the Stagecoach process was advised and run.
“We therefore welcome the DWP taking action to consider how to ‘level up’ the formal requirements sitting behind FAAs – to ensure that schemes following the Stagecoach route manage the interests and potential risks as thoroughly as in this pioneering case, alongside giving members the potential to benefit from improved outcomes.”
Hodder continued: “Innovation, choice and competition can be a real positive for consumers. It’s great to see the pensions minister embracing that, and the potential for the UK’s DB schemes to improve outcomes for all stakeholders.”
DB pension schemes are not just prey for commercial predators.
I am mainly a supporter of this Government and its Pension Minister, but not on this.
I see things as this lawyer does
Attempts to impose retrospective legislation on the transaction should be challenged, any attempts to stop Flexible Apportionment Arrangements (FAA) being shoe-horned into superfund legislation should be opposed.
This statement suggests the Government sees our remaining DB schemes as a hunting ground for insurers and commercial superfunds.
Looks like the blob is trying to stifle innovation – yet again – and to make a win-win-win solution unworkable with a thicket of rules and procedures. How that is going to help members and sponsors is beyond me.
I think this is all part of the Government’s anxiety to maximise the size of pension funds (via minimum size Mastertrusts and consolidators), whereas the Aberdeen deal goes the opposite way with a pension fund specifically targeted to meet the needs of its particular membership.
The Stagecoach Scheme remains completely separate from Aberdeen’s own scheme and the Trustees can ditch Aberdeen as their asset manager if they feel it is not performing for the members.
The issue is whether management for a particular group of Members is likely to lead to better outcomes than having the assets of a large group of a probably diverse group of Members managed as an entity. In DC Mastertrusts it is the Members with the largest pots that are the most attractive and likely carry the most weight. John Hamilton has been at pains to point out the small average pension of the (bus driver) members of the Stagecoach scheme and improving their outcome has been a key driver.
The key issue throughout UK pension arrangements is what proportion of the funds built up on a mutual basis are lost to capital providers (and advisors) rather than used to improve pension outcomes. An insurance company buy-in or buy-out certainly has been and may still be one of the worst examples of this with up to a third of the assets transferred lost to the insurer’s shareholders rather than being used to improve the pension outcomes of the Members. It appears to me that commercial consolidators inevitably aspire to similar levels of profit extraction, albeit some of the first to express an interest in the market proposed to do so on a profit sharing basis but appeared to be discouraged by the Regulators.
I do hope that any Government review does consider whether the regulatory framework is designed to improve pension outcomes rather than generate profits for the, increasingly non UK based, owners of financial institutions and service providers.