Defined Benefit Pensions Regulation: Flexible Apportionment Arrangements

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 pension scheme.

This Government have since delivered the landmark Pension Schemes Act 2026, 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, 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.

[HCWS114]