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.