The government plans to review rules permitting the transfer of defined benefit (DB) pension schemes from one sponsor to another in the wake of the landmark Stagecoach-Aberdeen deal.
Aberdeen took over as the sponsoring employer of bus company Stagecoach’s £1.2bn DB scheme in December, using a flexible apportionment arrangement, or FAA.
At the time, Aberdeen said the agreement was part of a strategy of “running on well-funded defined benefit schemes”. Stagecoach members have received a boost to pension payments and will receive “better inflation protection” in future, according to the scheme’s new sponsor.
“We want to encourage innovation that has the potential to benefit scheme members… and need to ensure the right legislative guardrails are in place.”
Torsten Bell, pensions minister
While the flexible apportionment arrangement was within the scope of existing DB rules, in a statement this week pensions minister Torsten Bell said the transaction used it “in a way not anticipated when the mechanism was introduced”.
“We want to encourage innovation that has the potential to benefit scheme members throughout the pension system and need to ensure the right legislative guardrails are in place for this to happen safely,” Bell said.
He added: “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.”
Stagecoach transfers DB scheme to Aberdeen in innovative run-on deal
Aberdeen has become the sponsoring employer of the Stagecoach Group Pension Scheme, taking on approximately 22,000 members, following a deal completed at the end of 2025. The financial services company will manage the pension scheme’s assets and funding and will receive “a minority share of any future surplus”, it said. Read the full article.
FAA regime ‘must remain appropriate’
FAAs were introduced in 2012 and were initially intended to allow pension schemes to be safely moved from one sponsoring entity to another during corporate activity such as restructurings, mergers, and acquisitions.
Bell said the Department for Work and Pensions (DWP) would “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”.
In particular, the review will explore the impact of such transfers on the Pension Protection Fund and the nascent DB superfund regime, the primary legislation for which is contained in the new Pension Schemes Act.
The pensions minister said the government needed to ensure that FAAs remained appropriate and to consider whether “additional safeguards” might be required. A consultation would be launched “in due course”, Bell said.
‘Coherent regulatory framework’ needed
Steve Hodder, a partner at LCP who led on the advice to Stagecoach regarding the Aberdeen deal, said “pragmatic safeguards” to protect members were important, emphasising that this would “mirror” how the Stagecoach-Aberdeen transaction was carried out.
“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 said.
“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.”
“Innovation and opportunities to increase benefits are welcome, but this needs to be part of a coherent regulatory framework.”
Rob Yuille, Association of British Insurers
Rob Yuille, head of long-term savings policy at the Association of British Insurers, said: “Innovation and opportunities to increase benefits are welcome, but this needs to be part of a coherent regulatory framework.
“Crucially, pension schemes that are run commercially need a different regulatory approach. If new consolidation models pose new risks, regulators need to be sure they have the tools to intervene.”
What the regulator says
On its website, the Pensions Regulator refers to FAAs in the context of multi-employer schemes. FAAs can be used to avoid an employer having to pay a section 75 debt when exiting a scheme, if there is a new employer to take on the liabilities.
The regulator also states that FAAs “may be used for schemes that remain open to future accrual, or for ‘frozen schemes’ which are closed to future accrual”.
FAAs have also been used during corporate restructuring events to transfer pension schemes from one sponsoring entity to another within the same group.
