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DB pension scheme surplus

Stay up-to-date with the latest conversations about the UK Government's growth agenda. On this page we explore the Government's plans to reform DB scheme surplus rules to unlock billions of pounds in investment to benefit employers, scheme members and the UK's economy.

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New rules promised on DB pension scheme surplus distributions

After a number of years of industry engagement, Government has announced that it will be changing the rules on DB pension scheme surplus use. The key policy purpose is to unlock “trapped” surplus assets for investment in the wider economy and to fuel economic growth. The press release also notably references the option of sharing of surpluses with scheme members.

Alongside the Treasury’s announcement, TPR has published detailed analysis of the latest funding position of the UK’s 4,800 pension schemes, which indicates:

50% of schemes are now in a buy-out surplus, with collective surpluses of c£100bn

75% of schemes are now in surplus on a “low dependency” basis, with collective surpluses of c£160bn (technically, this has been assessed on a “Gilts+0.5%” basis)

We think it is noteworthy that Government announcement focusses on the £160bn figure, perhaps indicating that new policy could allow surpluses to be released above “low dependency” full funding (rather than the higher hurdle of buyout funding).

Of course, any release of scheme assets needs to be treated very carefully with the right safeguards in place to ensure security of member benefits is not put at undue risk. TPR has noted its support of the proposals, stating that “where schemes are fully funded and there are protections in place for members, we support efforts to help trustees and employers consider how to safely release surplus if it can improve member benefits or unlock investment in the wider economy”.

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Your questions answered

A DB pension scheme surplus occurs when the scheme's assets exceed its liabilities—that is, the total value of promised pension benefits to members. This surplus indicates that the scheme is more than adequately funded, providing a buffer that can potentially be utilised for other purposes. (PLSA) 

The Government is moving forward with ideas about the better use of £1.4 trillion of assets held by DB schemes to stimulate economic growth. By reforming the rules, the government intends to allow these funds to be invested in the wider economy, benefiting both businesses and pension scheme members. Learn more

Under the proposed reforms, surpluses in DB pension schemes could be: 

  • Returned to sponsoring employers for business investment 

  • Used to enhance member benefits, such as discretionary pension increases 

  • Allocated to support Defined Contribution (DC) pension plans 

These uses would be subject to safeguards to ensure the security of members' benefits.  

Unlocking DB pension surpluses could provide UK businesses with significant capital for investment, potentially boosting productivity and growth. It may also encourage companies to maintain their pension schemes rather than transferring them to insurers, preserving long-term investment opportunities. (The Times) 

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