Surplus extraction from defined benefit schemes is likely to fall short of sector expectations, and could be less than previous headline estimates, according to a new report from the Pensions Policy Institute.
The PPI new report says both the scale and accessibility of the surplus that could be released may be less than previous estimates, due to a range of factors.
These factors include the variability of scheme rules, the different endgame strategies being pursued, a change in wider economic circumstances and the range of ways in which these funding ratios are calculated.
However, the research says that unlocking surplus funds from DB schemes can deliver real benefits for savers, provided there are robust safeguards in place. These benefits include improving member outcomes for pension savers to strengthening wider workplace pension provision.
Provisons included in the new Pensions Schemes Act will make it easier for trustees and scheme sponsors of well-funded DB schemes to unlock surplus funds, and gives them more flexibility on how these monies might be used.
This comes at a time when more the funding of DB schemes has materially improved, with more in a position to consider endgame options. This may now included running on in order to benefit from these surplus funding positions.
This PPI report — Unlocking DB surpluses: Balancing Risks and Rewards — provides an independent evidence base to understand the implications of the proposed changes for trustees and surplus access.
The report says the surplus funds that could realistically be released may be smaller than headline estimates suggest. It points out that decisions about surplus extraction remain subject to scheme rules, trustee discretion and fiduciary duties, which will impact the amount of that can be taken.
The PPI says that different endgame strategies are also central, with many schemes targeting insurance buy-out, meaning surplus may be retained to meet insurer pricing and support transaction readiness.
It also says that funding positions differ significantly depending on how liabilities are measured. While Section 179 and technical provisions measures show widespread surpluses, the position on a full buy-out basis remains weaker, with an aggregate funding ratio of around 95.8 per cent. The PPI points out that a substantial minority of schemes also remain materially underfunded on this basis, which will mean no surpluses can be taken.
The sustainability of surpluses also depends on funding resilience and investment risk. PPI modelling demonstrates that the durability of surpluses varies depending on starting funding ratios, scheme maturity, accrual status, and investment strategy. For example, PPI modelling shows run-on schemes that closed to new entrants 10 years ago and closed to future accrual face an over 1 in 4 (26 per cent) risk of falling into deficit, if no remedial action was taken over a 25-year period.
It also adds that scheme surpluses have been driven by economic conditions, alongside scheme-level decisions. Higher long-term interest rates have reduced the present value of liabilities, while asset performance, moderated longevity assumptions, and historic sponsor contributions have reinforced funding gains. The sustainability of these outcomes continues to depend on scheme-level decisions.
All the analysis for the research was conducted before the March 2026 PPF figures were published, reflecting recent geopolitical instability. The report has been sponsored by Standard Life, the ABI, Aptia and Pensions UK.
PPI policy research and lead author of the report Shantel Okello says: “While it may be possible for some schemes, expectations around widespread surplus across the private DB market may not fully reflect the realities of extraction.
“Our modelling has identified significant variations of funding resilience and investment risk, with endgame strategies for individual schemes and differences in liability measurement also critical to understanding the true scale and accessibility of surplus extraction. At a critical juncture for this area of policy development, this new report delivers new independent insights to the evidence base to support informed decision-making.”
ABI head of long-term savings policy Rob Yuille adds: “The core purpose of any defined benefit scheme is to pay members their promised pension in full. This must stay forefront to any debates about surplus extraction. As this report highlights, extracting a surplus – even from a well-funded scheme – significantly increases the probability that it will go into deficit in future, potentially to an extreme level. The same shocks that threaten a surplus can also threaten a sponsoring employer. This is why trustees need to look carefully at the scheme’s risks and choices, and regulations should set clear and specific tests before surplus can be taken.”
Standard Life managing director, pension risk transfer and individual retirement Claire Altman adds: “This report is a timely reminder that a surplus on paper does not necessarily translate into guaranteed member outcomes. What matters is how resilient that surplus is under stress and how it fits with a scheme’s long‑term endgame.
“For schemes considering run‑on, this raises important questions. Confidence in both the resilience of the funding position and the strength of the sponsor covenant over the long term is critical.
“Against that backdrop, securing liabilities with an insurer offer a clear and established route to long‑term certainty for pension members. Insurers have typically not been vocal about the added benefits of buy-in and buy-outs as they were the assumed objective. But it’s important to remember that they feed UK growth as capital is deployed at scale in large part supporting the UK economy. Corporates benefit from a transfer of ongoing governance and all benefit from insurers’ accountability to institutions specifically designed to manage very long-term risks.”
