LCP poll finds more than 9 in 10 plan to release DB surplus

In a recent industry poll, collected during an LCP webinar on the new DWP draft regulations on surplus release for DB pension schemes, more than 9 in 10 respondents said that they expect to release surplus using the new flexibilities.

Of those surveyed, 29% said they would release surplus as a single payment, 63% would do so in instalments. Only 8% said they had no intention of doing so.

Attendees were also asked about what funding measure would be the most appropriate to consider when reviewing the amount of surplus to release. 56% of attendees said they would be comfortable releasing surplus linked to the buyout measure, whereas 44% said low dependency. The majority of attendees indicated they might expect a buffer above their chosen measure.

Earlier this month, the DWP issued draft regulations on surplus use and The Pensions Regulator issued an accompanying statement. With the policy direction shifting and more schemes able to consider surplus release, the webinar explored some of the key considerations and tensions schemes will need to address in practice.

These included:

• Building surplus planning into endgame strategy from the outset.
• Defining clearly what a “safe” level of surplus release looks like, not only on a best‑estimate basis, but under downside scenarios as well.
• Recognising that surplus release is rarely a one-off event and is more likely to be a managed programme requiring clear planning, strong governance, and a robust monitoring and contingency framework.
• Understanding the covenant implications as releasing surplus increases the likelihood of future reliance on the employer for support.
• Ensuring decision-making can withstand scrutiny through clear responsibilities, independent advice, and a well-documented audit trail.

Jonathan Griffith, Partner and Head of Endgame Innovation commented: “The direction of travel is clear: most respondents expect surplus release to become part of their pensions toolkit. Schemes will need the right governance and appropriate decision-making frameworks in place in order to make the most of the available opportunities whilst protecting members and avoiding problems down the line”

Helen Abbott, Covenant Partner at LCP added: “Surplus release can unlock real value for both employers and scheme members, but it needs to be managed carefully. Strong contingency planning, including covenant monitoring, and triggers for action if things don’t go to plan are vital. The guidance from TPR emphasises the role contingent assets can have in underwriting risk, and we have seen this be a key feature in surplus release discussions so far.”