Retirement benefit and other post-retirement obligations

12 Months Ended

Dec. 31, 2025

Retirement benefit and other post-retirement obligations

25. Retirement benefit and other post-retirement obligations

Background

The Group operates a number of defined benefit and defined contribution retirement plans throughout the world.

The largest plan is the Pearson Pension Plan (UK Group plan) in the UK, which is sectionalised to provide both defined benefit and defined contribution pension benefits. The defined benefit section was largely closed to new members from 1 November 2006. The defined contribution section, opened in 2003, is open to new and existing employees. Finally, there is a separate section within the UK Group plan set up for auto-enrolment.

The defined benefit section of the UK Group plan is a final salary pension plan which provides benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits depends on the length of service and final pensionable pay.

The defined contribution section of the UK Group plan operates a Reference Scheme Test (RST) pension underpin for its members. Where a member’s fund value is insufficient to purchase the RST pension upon retirement, the UK Group plan is liable for the shortfall to cover the member’s RST pension. In addition, in recent years, the scheme rules were amended to enable members who have sufficient funds to purchase an RST pension the ability to convert their fund value into a pension in the UK Group plan as an alternative to purchasing an annuity with an insurer. The Group recognises any assets and liabilities relating to these features of the defined contribution section as part of the overall UK Group plan obligation. The Group also recognises the assets and liabilities for all members of the defined contribution section of the UK Group plan, accounting for the whole defined contribution section as a defined benefit scheme under IAS 19 ‘Employee Benefits’ as there is a risk the underpin will require the Group to pay further contributions to the scheme.

The UK Group plan is funded with benefit payments from trustee-administered funds. The UK Group plan is administered in accordance with the Trust Deed and Rules in the interests of its beneficiaries by Pearson Pension Trustee Limited.

At 31 December 2025, the UK Group plan had approximately 25,700 members, analysed in the following table:


All figures in %	Active		Deferred		Pensioners		Total

Defined benefit		–		12		35		47

Defined contribution		11		42		–		53

Total		11		54		35		100

The other major defined benefit plans are based in the US. These are also final salary pension plans which provide benefits to members in the form of a guaranteed pension payable for life, with the level of benefits dependent on length of service and final pensionable pay. The majority of the US plans are fully funded. In 2025, the Group entered into a

buy-out

agreement with a third party insurance provider to full

insure the liabilities of the Pearson Inc Pension Plan. Under the terms of the

buy-out,

the insurer has assumed responsibility for paying all future benefits to members of the scheme. The

buy-out

was primarily funded using existing scheme assets. The Group has derecognised the pension liability associated with the scheme from its balance sheet for no material gain or loss.

The Group also has several post-retirement medical benefit plans (PRMBs), principally in the US. PRMBs are unfunded but are accounted for and valued similarly to defined benefit pension plans.

The defined benefit schemes expose the Group to actuarial risks, such as life expectancy, inflation risks and investment risk including asset volatility and changes in bond yields. The Group is not exposed to any unusual, entity-specific or plan-specific risks.




		Key judgements

		• Whether the Group will be eligible to receive the surplus associated with the UK Group Pension Plan in recognising a pension asset.

		Key areas of estimation

		• The determination of the pension cost and defined benefit obligation of the Group’s defined benefit pension schemes depends on the selection of certain assumptions, which include the discount rate, inflation rate, salary growth and longevity.

Assumptions

The principal assumptions used for the UK Group plan and the US PRMB are shown below. Weighted average assumptions have been shown for the other plans, which primarily relate to US pension plans.


					2025						2024						2023

All figures in %	UK Group plan		Other plans		PRMB		UK Group plan		Other plans		PRMB		UK Group plan		Other plans		PRMB

Inflation		2.8		2.0		–		3.1		2.0		–		3.0		2.0		–

Rate used to discount plan liabilities		5.5		4.9		4.9		5.5		5.1		5.4		4.6		4.9		5.0

Expected rate of increase in salaries		3.3		2.5		–		3.6		2.5		–		3.5		2.5		–

Expected rate of increase for pensions in payment and deferred pensions		1.70 to 5.10		–		–		1.85 to 5.15		–		–		1.75 to 5.10		–		–

Initial rate of increase in healthcare rate		–		–		6.8		–		–		7.0		–		–		6.5

Ultimate rate of increase in healthcare rate		–		–		5.0		–		–		5.0		–		–		5.0

The UK discount rate is based on corporate bond yields adjusted to reflect the duration of liabilities.

he inflation rate for the UK Group plan of

2.8

% (2024:

3.1

%) reflects the RPI rate. In line with changes to legislation in 2010, certain benefits have been calculated with reference to CPI as the inflationary measure and in these instances a rate of

2.2

% (2024:

2.5

%) has been used. The CPI rate is determined as a weighted average deduction from the RPI rate, and allows for the expected change to the formula for calculating RPI to be in line with CPIH from 2030 onwards.

For the UK Group plan, the mortality base table assumptions are derived from the SAPS S4 for males and females, adjusted to reflect the observed experience of the plan, with CMI model improvement factors. A

1.5

long-term rate improvement on the CMI 2024 model is applied for both males and females, with an

adjustment to improvement at older ages, which slightly reduces life expectancies. Life expectancy remains uncertain in the current environment and is an area of judgement.

For the US plans, a mortality table (Pri – 2012) and 2021 improvement scale (MP – 2021) with generational projection for male and female annuitants has been adopted.

Using the above tables, the remaining average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date for the UK Group plan and US plans is as follows:


All figures in years	2025		2024		UK 2023		2025		2024		US 2023

Male		21.5		21.3		21.8		20.8		20.7		20.7

Female		24.5		24.5		24.1		22.8		22.7		22.6

The remaining average life expectancy in years of a pensioner retiring at age 65, 20 years after the balance sheet date, for the UK and US Group plans is as follows:


All figures in years	2025		2024		UK 2023		2025		2024		US 2023

Male		23.1		22.9		23.4		22.3		22.2		22.2

Female		26.2		26.2		25.8		24.2		24.1		24.1

Although the Group anticipates that plan surpluses will be utilised during the life of the plan to address member benefits, the Group recognises its pension surplus in full in respect of the UK Group plan on the basis that it is management’s judgement that there are no substantive restrictions on the return of residual plan assets in the event of a winding up of the plan after all member obligations have been met.

Financial statement information

The amounts recognised in the income statement are as follows:


														2025

All figures in £ millions	UK Group plan			Defined benefit other			Sub-total			Defined contribution		PRMB		Total

Current service cost		17			1			18			41		–		59

Past service cost		–			–			–			–		–		–

Settlements		–			–			–			–		–		–

Administration expenses		9			–			9			–		–		9

Total operating expense		26			1			27			41		–		68

Interest on plan assets		(158	)		(3	)		(161	)		–		–		(161	)

Interest on plan liabilities		132			3			135			–		1		136

Net finance (income)/expense		(26	)		–			(26	)		–		1		(25	)

Net income statement charge		–			1			1			41		1		43


														2024

All figures in £ millions	UK Group plan			Defined benefit other			Sub-total			Defined contribution		PRMB		Total
Current service cost		17			2			19			41		–		60

Past service cost		13			–			13			–		–		13

Settlements		–			–			–			–		–		–

Administration expenses		8			–			8			–		–		8

Total operating expense		38			2			40			41		–		81

Interest on plan assets		(138	)		(5	)		(143	)		–		–		(143	)

Interest on plan liabilities		116			5			121			–		1		122

Net finance (income)/expense		(22	)		–			(22	)		–		1		(21	)

Net income statement charge		16			2			18			41		1		60


														2023

All figures in £ millions	UK Group plan			Defined benefit other			Sub-total			Defined contribution		PRMB		Total
Current service cost		16			2			18			45		–		63

Past service cost		–			–			–			–		–		–

Settlements		–			–			–			–		–		–

Administration expenses		8			–			8			–		–		8

Total operating expense		24			2			26			45		–		71

Interest on plan assets		(148	)		(5	)		(153	)		–		–		(153	)

Interest on plan liabilities		121			6			127			–		–		127

Net finance (income)/expense		(27	)		1			(26	)		–		–		(26	)

Net income statement charge		(3	)		3			–			45		–		45

The amounts recognised in the balance sheet are as follows:


										2025												2024

All figures in £ millions	UK Group plan			Other funded plans			Other unfunded plans			Total			UK Group plan			Other funded plans			Other unfunded plans			Total

Fair value of plan assets		2,994			5			–			2,999			2,927			84			–			3,011

Present value of defined benefit obligation		(2,480	)		(1	)		(12	)		(2,493	)		(2,443	)		(77	)		(14	)		(2,534	)

Net pension asset/ (liability)		514			4			(12	)		506			484			7			(14	)		477

Other post-retirement medical benefit obligation											(17	)											(19	)

Other pension accruals											(7	)											(8	)

Net retirement benefit asset											482												450

Analysed as:

Retirement benefit assets											518												491

Retirement benefit obligations											(36	)											(41	)

The following gains/(losses) have been recognised in other comprehensive income:


All figures in £ millions	2025			2024		2023

Amounts recognised for defined benefit plans		11			4		(86	)

Amounts recognised for post-retirement medical benefit plans		(1	)		1		1

Total recognised in year		10			5		(85	)

The fair value of plan assets comprises the following:


					2025						2024

All figures in %	UK Group plan		Other funded plans		Total		UK Group plan		Other funded plans		Total

Insurance		30		–		30		31		–		31

Equities		19		–		19		17		1		18

Fixed interest securities		8		–		8		7		2		9

Property		5		–		5		5		–		5

Pooled asset investment funds (including LDI)		21		–		21		22		–		22

Infrastructure		10		–		10		11		–		11

Cash and cash equivalents		4		1		5		2		–		2

Other		2		–		2		2		–		2

The plan assets do not include any of the Group’s own financial instruments, or any property occupied by the Group. The table below further disaggregates the plan assets into those assets which have a quoted market price in an active market and those that do not:


All figures in %	Quoted market price		2025 No quoted market price		Quoted market price		2024 No quoted market price

Insurance		–		30		–		31

Equities		19		–		18		–

Fixed-interest securities		8		–		9		–

Property		–		5		–		5

Pooled asset investment funds (including LDI)		21		–		22		–

Infrastructure		–		10		–		11

Cash and cash equivalents		–		5		–		2

Other		–		2		–		2

Total		48		52		49		51

The liquidity profile of the UK Group plan asset

s is as follows:


All figures in %	2025		2024

Liquid – call <1 month		53		50

Less liquid – call 1–3 months		2		2

Illiquid – call >3 months		45		48

Changes in the values of plan assets and liabilities of the retirement benefit plans are as follows:


All figures in £ millions	UK Group plan			Other plans			2025 Total			UK Group plan			Other plans			2024 Total

Fair value of plan assets

Opening fair value of plan assets		2,927			84			3,011			3,060			107			3,167

Exchange differences		–			(4	)		(4	)		–			(2	)		(2	)

Interest on plan assets		158			3			161			138			5			143

Return on plan assets excluding interest		40			–			40			(144	)		1			(143	)

Contributions by employer		16			3			19			8			1			9

Contributions by employees		7			–			7			7			–			7

Benefits paid		(154	)		(11	)		(165	)		(142	)		(12	)		(154	)

Settlements		–			(70	)		(70	)		–			(16	)		(16	)

Closing fair value of plan assets		2,994			5			2,999			2,927			84			3,011

Present value of defined benefit obligation

Opening defined benefit obligation		(2,443	)		(91	)		(2,534	)		(2,569	)		(114	)		(2,683	)

Exchange differences		–			4			4			–			–			–

Current service cost		(17	)		(1	)		(18	)		(17	)		(2	)		(19	)

Past service cost		–			–			–			(13	)		–			(13	)

Administration expenses		(9	)		–			(9	)		(8	)		–			(8	)

Interest on plan liabilities		(132	)		(3	)		(135	)		(116	)		(5	)		(121	)

Actuarial losses – experience		(50	)		(2	)		(52	)		(53	)		–			(53	)

Actuarial gains – demographic		6			–			6			38			–			38

Actuarial gains/(losses) – financial		18			(1	)		17			160			2			162

Contributions by employees		(7	)		–			(7	)		(7	)		–			(7	)

Benefits paid		154			11			165			142			12			154

Settlements		–			70			70			–			16			16

Closing defined benefit obligation		(2,480	)		(13	)		(2,493	)		(2,443	)		(91	)		(2,534	)

The weighted average duration of the defined benefit obligation is

years for the UK

Changes in the value of the US PRMB are as follows:


All figures in £ millions	2025			2024

Opening defined benefit obligation		(19	)		(21	)

Exchange differences		2			–

Interest on plan liabilities		(1	)		(1	)

Actuarial gains – experience		(1	)		1

Actuarial losses – financial		–			–

Benefits paid		2			2

Closing defined benefit obligation		(17	)		(19	)

Funding

The UK Group plan is self-administered with the plan’s assets being held independently of the Group in trust. The trustee of the UK Group plan is required to act in the best interest of the plan’s beneficiaries. The most recent triennial actuarial valuation for funding purposes was completed as at 1 January 2024, and this valuation revealed a technical provision surplus of £255m. The UK Group plan expects to be able to provide benefits (in accordance with the plan rules) with a very low level of reliance on future funding from the Group.

Assets of the final salary section of the UK Group plan are divided into two main elements: liability matching assets and return seeking assets. The UK Group plan’s investment strategy for the final salary section allocates approximately 95% to matching assets and 5% to return-seeking assets.

Liability matching assets are assets that produce cash flows that can be expected to match the cash flows for a proportion of the membership, and include a liability-driven investment mandate (LDI) for which a Qualifying Investor Alternative Investment Fund (QIAIF) was established, managed by a subsidiary of Legal & General Investment Management. The QIAIF invests in UK bonds, interest rate/inflation swaps and other derivative instruments in order to reduce interest rate and inflation risks using accurate cash flow matching and risk control. Other liability matching assets include pensioner

buy-in

insurance policies, bonds and inflation-linked property and infrastructure.

Following the purchase of

buy-in

policies with Legal & General and Aviva in 2017 and 2019, 95% of the UK Group plan’s pensioner liabilities were matched with

buy-in

policies. These transfer significant longevity risk to Aviva and Legal & General, reducing the pension risks being underwritten by the Group and providing additional security for members. Due to deferred members retiring since 2019 and becoming pensioner members the

buy-in

policies now cover approximately 75% of the UK Group Plan’s pensioner liabilities.

Return-seeking assets are assets invested with a longer-term horizon to generate the returns needed to provide the remaining expected cash flows for the beneficiaries, and include diversified growth funds, property and alternative asset classes. Continued economic and geopolitical uncertainty has led to continued uncertainty and volatility in the valuation of certain assets, in particular the LDI and insurance contracts.

Movements in the LDI and insurance contracts tend to be offset by equivalent movements in the defined benefit obligation. The UK Group plan divides its assets between a number of investment managers and across different types of assets, as such there is no significant concentration of risk.

Regular employer contributions to the UK Group plan in respect of the defined benefit sections are estimated to b

nil

for 202

Sensitivities

The effect of a one percentage point increase and decrease in the discount rate on the defined benefit obligation and the total pension expense is as follows:


All figures in £ millions	1% increase			2025 1% decrease

Effect:

(Decrease)/increase in defined benefit obligation – UK Group plan		(151	)		181

(Decrease)/increase in defined benefit obligation – US plan		(1	)		1

The effect of members living one year more or one year less on the defined benefit obligation is as follows:


All figures in £ millions	One year increase		2025 One year decrease

Effect:

Increase/(decrease) in defined benefit obligation – UK Group plan		40		(39	)

Increase/(decrease) in defined benefit obligation – US plan		–		–

The effect of a half percentage point increase and decrease in the inflation rate is as follows:


All figures in £ millions	0.5% increase		2025 0.5% decrease

Effect:

Increase/(decrease) in defined benefit obligation – UK Group plan		38		(36	)

Increase/(decrease) in defined benefit obligation – US plan		–		–

The sensitivity analyses are based on a change in an assumption while holding all other assumptions constant, although in practice this is unlikely to occur and changes in some assumptions may be correlated. When calculating these sensitivities, the same method has been applied to calculate the defined benefit obligation as has been applied when calculating the liability recognised in the balance sheet. This methodology is the same as prior periods.