Disputes over DB scheme surpluses are set to grow unless employers and trustees address questions over ownership, according to a report by Hymans Robertson.
In its latest paper, ‘Whose surplus is it anyway?’, the firm argues that leaving these conversations until surplus decisions are needed could make agreement harder to reach. If schemes fail to resolve this now, disagreements over surplus allocation could delay endgame plans, plus increase costs and risks.
The report also warns there are widely differing expectations around pension surplus allocation, creating a growing challenge for schemes as funding levels improve. Hymans Robertson went on to claim that the key to unlocking any deadlock is for all parties to analyse the scheme’s surplus history, as in doing this they can weigh up all relevant factors to create a stronger basis for discussions about surplus ownership.
Many schemes spent decades managing deficits, the report stated, with trustees overseeing recovery plans and risk reduction strategies.
Martin Potter, partner and scheme actuary at Hymans Robertson, says: “There are strong views on all sides when it comes to pension scheme surplus. For some, the starting point is that all surplus belongs to the employer. For others, there are clear expectations that members should benefit. The challenge is that these positions are often formed before there has been any detailed discussion about how the surplus actually came about.
“As more schemes find themselves in surplus, competing expectations about how those funds should be used is an increasingly important issue for trustees and employers.”
The report follows the recently passed Pension Schemes Act, which contains reforms as to how easily trustees can access DB surplus.