UK PensionWatch: Q4 2025 | Insight Investment

The government’s Budget 2025 policy paper¹ included a commitment to reduce the tax charge on surplus funds paid directly to members, and to “enable well-funded DB pension schemes to pay surplus funds directly to scheme members over the normal minimum pension age, where scheme rules and trustees permit it, from April 2027”. This was widely seen as a positive step, in part as it would allow a sponsoring employer to share surplus with members without increasing pension liabilities².

¹ Budget 2025, 26 November 2025, HM Treasury. See section 5.11.
² Budget 25: Government to allow DB schemes to pay surplus funds directly to members, 27 November 2025, Professional Pensions

The government also announced in the Budget¹ that from January 2027, members of the PPF and FAS will see their pre-1997 pension accruals rise each year in line with the Consumer Prices Index, up to a maximum of 2.5% per year. This applies only if their original pension scheme included this inflation protection.

¹ Budget 2025, 26 November 2025, HM Treasury. See section 5.3.

The Stagecoach scheme, which is in surplus, accounts for £1.2bn of assets and over 22,000 members. Aberdeen Group will take over as sponsor for the scheme, increase pensions for all members by c.1.5% and improve the inflation linkage of benefits¹. Aberdeen will receive a minority share of any future distributed surplus.

¹ Aberdeen to take on Stagecoach Group Pension Scheme, 4 December 2025, Aberdeen.

The Department for Work and Pensions (DWP) published a consultation¹ on strengthening the governance, trusteeship, and administration of trust-based pension schemes in response to significant upcoming reforms, such as DC “megafunds”, DB superfunds, value-for-money assessments, and flexible retirement options, introduced by the Pension Schemes Bill.

The consultation focuses on ensuring trustees have the necessary skills, knowledge, independence and diversity to navigate a more complex pensions landscape, and considers new standards such as accreditation, enhanced oversight of professional and lay trustees, and extending regulatory scrutiny to pension administrators. It also explores measures to improve administrative quality, including sound contract management by trustees, to deliver better outcomes.

• To submit a response to the consultation, respondents must email trusteeshipgovernanceconsult@dwp.gov.uk before midnight on 5 March 2026. The full consultation document is available here.

¹ Trust-based pension schemes: Trustees and governance, building a stronger future, 15 December 2025, DWP.

The Pensions Regulator is seeking views on a draft code of practice that will amend the existing code for collective defined contribution (CDC) schemes to cover the authorisation and supervision of unconnected multiple employer schemes providing CDC benefits¹. The revised code sets out the criteria for authorisation, TPR’s expectations of multi-employer CDC schemes, and how it will use its powers to support this new innovation to market.

The consultation was announced after the government published multi-employer CDC regulations in October. The regulations are expected to come into force at the end of July 2026, on the same day as TPR’s revised code. TPR anticipates being able to accept applications from the beginning of August, with schemes potentially operating in early 2027.

• To submit views in response to the consultation, respondents must use the online survey or, if unable to do so, email cdcpolicy@tpr.gov.uk by 13 February 2026.

¹ Consultation launched for TPR’s new multi-employer CDC code, 19 December 2025, TPR.

Revised administration guidance that applies to all types of pension scheme was published by TPR¹. The updated guidance introduces new elements including the importance of trustees providing effective oversight; the need for performance measurement to focus not just on time-based measures, but also on the accuracy and quality of scheme administration; and guidance on governance of IT systems.

¹ Administration of a pension scheme, 9 December 2025, TPR.

The Pensions Regulator launched an initiative to explore the approach of DC and DB pension schemes to “investing in growth assets that could boost returns for savers over the long term, and to better understand the barriers to doing so”¹. It said it will focus on pension schemes “with material scale” which could, or may be considering, such investments.

The regulator said it expects to complete engagement with industry by the end of 2025, and to publish a market oversight report in 2026.

¹ TPR probes barriers to investment in private markets and infrastructure that could deliver better returns for savers, 8 December 2025, TPR.

In September 2025, the Bank of England published a discussion paper focusing on enhancing the resilience of the gilt repo market,
with a particular focus on two potential reforms: greater central clearing of gilt repo, and minimum haircuts on non-centrally cleared
gilt repo transactions17. Such reforms would be material for DB schemes’ approach to investment and risk management, as many use
gilt repo to increase the size of their liability hedge as part of a prudent risk-management strategy. Feedback was due by late
November 2025.

Insight responded to the discussion paper, highlighting that centrally cleared gilt repo is a helpful tool to have available for DB
schemes, but mandating clearing of gilt repo for DB pension schemes would have significant negative consequences. Similarly,
mandatory minimum haircuts on gilt repo used by DB schemes could lead to significant additional risks, costs and other undesirable
outcomes. You can read Insight’s response here.

Recent corporate earnings have reaffirmed our view of strong corporate fundamentals, underpinned by resilient profit growth. However, a notable theme across corporate results has been rising capital expenditure. We expect 2026 to be impacted by borrowing for capex and M&A activity, driving a significant increase in issuance – most notably from AI-related expenditure. While this supply dynamic is now well telegraphed and is unlikely to surprise markets, we anticipate that spreads could continue to edge wider and settle into a higher trading range early in the year as corporates return to the market in size. If supply disappoints and investor demand remains high, then spreads should grind tighter. New issuance often comes to market with yields above prevailing levels. These types of primary market opportunities could benefit managers capable of active participation, which may help offset any effects of wider spreads. One trend that we’re closely monitoring is high-quality US corporates looking to issue euro-denominated debt to take advantage of lower coupon rates. This can present opportunities for those with global mandates or flexibility to invest off-benchmark. We don’t see any reason for investor demand to falter in 2026 as investment grade credit offers a meaningful yield pickup from cash, and spreads offer attractive returns when compared to fundamental default risks, so we expect demand to remain high, with a focus on security selection and relative-value trades.

2025 was a strong year for high yield market performance, supported by a robust technical backdrop that we expect to persist into 2026. That said, we anticipate a pickup in supply across both US and European markets. While refinancing activity should dominate, we also see room for increased issuance linked to acquisitions and capital expenditure. In addition, AI infrastructure financing is likely to make its way into the high yield space in various forms. This rise in supply could exert some upward pressure on spreads, leading to slightly softer returns than seen in 2025. Default rates remain at the lower end of historical ranges, and we see little reason for this to change given the improving quality of public high yield issuers and the migration of weaker credits to private debt markets. Maintaining caution around highly leveraged cyclical names and keeping an underweight in CCC-rated credits should help to further mitigate default risk. Credit selection will remain critical, and we expect meaningful opportunities to add value via active security selection throughout the year. On a positive note, many corporates will have learned how to negotiate the new trade backdrop over the second half of 2025, putting them on a firmer footing going into 2026.

2025 delivered solid, primarily income-driven returns, and we expect a similar outcome in 2026. A gradual reduction in US and UK interest rates should provide support for consumers in those markets, though it will also temper returns given the floating-rate nature of the asset class. This dynamic reinforces the importance of credit selection to capture the best opportunities. We see particular potential in the UK, where markets appear overly pessimistic about consumer prospects following negative headlines around tax increases. With the Budget now behind us, we anticipate sentiment will normalise in the months ahead. Our approach remains active in primary markets, taking advantage of new-issue premiums while seeking relative-value opportunities that offer compelling risk-reward profiles. We continue to favor transactions with seniority in the capital structure and robust deal features that redirect cashflow in the event of underperformance in the underlying asset pool. Strong underwriting and servicing standards should further help insulate investors if economic conditions weaken unexpectedly.