Four out of 10 DB schemes would consider releasing surplus funds, under new legislation, providing certain criteria were met.
These were the finding of a recent survey by Sackers, following a webinar. It said this showed there was “strong appetite” for releasing surplus funds in a run-on situation, provided conditions were right.
The survey found that a 32 per cent of those managing DB schemes said they would “never” release surplus funds, while a quarter said they only release surplus funds if the scheme remains fully funded on a buy-out basis.
The remaining 41 per cent expressed willingness to consider surplus release under more flexible terms. In total around 3 per cent said they would release if the scheme remains 100 per cent funded on low-dependency basis, 5 per cent would require a small buffer (funding levels of 101-110 per cent) to consider release. A slightly higher percent would want a larger buffer of more than 110 per cent while 15.5 per cent said their answer would depend on how much surplus is used for members.
In all these cases attendees were told that part of the surplus would be used to augment members’ benefits.
Sackerssays these results offer an encouraging picture: while around half of respondents remain cautious, a substantial percentage showed clear openness to unlocking surplus DB funds.
Sackers partner Tom Jackman says: “The fact that roughly 40 per cent of schemes are potentially open to surplus release under the right conditions indicates a real opportunity and given the sheer size of the UK DB market — as this represents a vast amount of capital.
“With scheme funding levels continuing to improve, greater flexibility over the use of surplus has the potential to unlock new investment into the UK economy, drive genuine innovation across the DB landscape and, at the same time, deliver meaningful enhancements for members.”
He adds: “It’s clear there are many deals to be done. Trustees, who are effectively the gatekeepers of surplus, will need to be comfortable that members are getting a fair share of the benefit – but determining how much, in what proportions, and how to structure it is far from straightforward.
“Beyond the obvious factors such as funding and covenant, trustees must also weigh more nuanced considerations such as existing surplus rules, discretionary practices, and even historic contributions, benefit changes and bulk transfers. Each proposal will need to be considered in the context of its own unique circumstances.
“It will be a challenging task, but it is an opportunity that we believe should be fully embraced. Getting it right is a genuine win-win – for the scheme and its members, for sponsors and potentially for the UK economy.”
