Aberdeen's pioneering transaction to assume sponsorship of the £1.2bn Stagecoach Group Pension Scheme (SGPS) marks a significant milestone in the evolution of UK defined benefit (DB) pensions. The deal shows that there are alternatives for well-funded schemes to access surplus, beyond the well-trodden buyout path.
Under the Stagecoach transaction, Aberdeen became the sponsoring employer of the SGPS, enabling the scheme to run-on and deploy surplus assets to enhance member benefits. Key features of the deal included:
- Improved inflation protection: The potential for higher increases, with guardrails to ensure sustainability
- Immediate uplift: Members will receive an additional 1.5% increase in their current pensions
- Surplus-sharing framework: Future surpluses will primarily benefit members, with Aberdeen receiving a minority share.
WTW provided actuarial advice to Aberdeen throughout, supporting the design of a structure that balanced member enhancements with sustainability. Mark Daniel, Managing Director at WTW, said: "I was delighted to lead WTW's advice to Aberdeen on this landmark transaction. Our focus was on finding the sweet spot where members could enjoy an immediate boost to pensions, enhanced inflation protection and the potential for further increases, while ensuring the scheme's long-term self-sufficiency. This deal demonstrates the power of innovative thinking in surplus-sharing."
The UK DB market has long viewed insurance buyouts as the ultimate endgame. While buyouts offer certainty of outcome, which will be critical for some stakeholders, they typically come at the cost of pace of execution, flexibility and potential upside for members in the future. Aberdeen's approach provides an interesting template for well-funded schemes with strong governance to pursue a run-on strategy that utilises surplus and retains future flexibility. With the expected change in surplus refund legislation in late 2027, this could herald a wave of surplus-sharing models in the coming years.
Indeed, the transaction follows Aberdeen's earlier decision to run on its own £2.6bn DB scheme, signalling a strategic commitment to innovative pension solutions. Rob Andrew, Head of UK Pension Strategy & Solutions, commented: "The agreement with Stagecoach shows what can be achieved when sponsors and trustees work collaboratively. By unlocking the benefits of running on, we've created a structure that delivers for members today and positions the scheme for sustainable growth. It's a model we believe will resonate across the industry as schemes look beyond buyout to more flexible solutions."
The transaction comes amid heightened industry interest in surplus use. The Pensions Regulator has, however, emphasised the need for robust governance and member-first principles in any run-on strategy – both features of Aberdeen's transaction. For trustees, the Aberdeen deal offers a compelling case study in balancing prudence with delivering to member needs (in particular, providing greater protection against high inflation - an ongoing concern for many trustees). For sponsors, it highlights opportunities to unlock trapped surplus and accelerate the settlement of pension obligations. The real question is how replicable the Stagecoach transaction is for other schemes.
Bina Mistry, Head of Corporate Consulting at WTW, notes "Where sponsors and trustees collaborate to find a solution to achieve their respective objectives, it is possible to develop win-win scenarios. Whether it is through a surplus-sharing strategy or an alternative endgame solution, I expect to see much more innovation in the coming years. And this will accelerate as we see more schemes evaluating the benefits of a surplus-sharing agreement in preparation for the change in surplus release legislation from late 2027 – our recent survey suggested nearly 50% of schemes would look to run-on after full insurance is possible and 30% are expected to do so to proactively consider surplus use".
With over £1trn in UK DB assets and c1,600 schemes in buyout surplus according to the PPF's 2025 Purple Book, the potential for innovation is significant. For now, Aberdeen has set a benchmark – similar agreements between trustees and sponsors could become a defining trend in 2026 and beyond.
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Head of Corporate Consulting
WTW
Managing Director
WTW
