Trustees must clarify DB surplus ownership soon

Trustees and employers must clarify how to use surpluses in defined benefit (DB) pension schemes before new rules take effect, according to a consultancy report. The Department for Work and Pensions (DWP) is consulting on expanded powers for trustees to release surplus capital from overfunded DB schemes, with the process set to close next month. The guidance seeks to ensure that any released funds are applied in a manner that does not jeopardise members’ retirement security.

The report from Hymans Robertson recommends trustees review their scheme’s funding history, membership profile, contribution patterns, and key events such as closures or covenant commitments. This analysis should focus on the period since the scheme last recorded a surplus, because older data may not reflect current conditions. By concentrating on recent trends, the board can better assess whether excess assets are genuine and sustainable.

“Many schemes have long memories and scars from 25 years of arguing about deficit recovery plans,” the report notes. “Giving these their proper context helps narrow the differences in expectations about today’s surpluses.” It also warns that no single mathematical or actuarial method can determine surplus ownership, and that legal advice may be needed to reach a practical agreement between trustees and employers.

Research from Independent Governance Group (IGG) found that two in five of the executives and pension decision-makers surveyed considered a well-funded DB scheme to be a potential source of future value. The survey also showed that 81% of respondents reported increased board or executive time spent on pension discussions over the past five years, with 37% noting a significant rise.

David Farmer, trustee director at IGG, said improved funding positions have expanded strategic options but also created more complex decisions. He noted that “Buyout as soon as possible is no longer the default option.” He added that “Success increasingly depends on strong governance, effective sponsor-trustee collaboration, and access to the right expertise.”

The report also highlighted that there is unlikely to be a mathematically or actuarially ‘correct’ answer to allocating surplus. Trustees should seek legal advice and be prepared for a commercial and pragmatic agreement between trustees and the employer.