More than six out of 10 DB schemes who have agreed surplus sharing arrangements will make a distribution solely to the sponsoring employer, according to new research from Aon.
Its latest survey on this issue found that the vast majority of schemes have not yet decided how they will use surplus funds when more flexible surplus sharing rules come into force in April 2027.
However the survey shows those plans in place were favouring payments to employers over scheme members.
Among schemes in surplus who intended to run-on, three quarters had yet to decide how to use a surplus. But of those that had firm plans, 62 per cent said they were distributing part of their surplus solely to the employer, with 17 per cent distributing a surplus to benefit members only. The remaining 21 per cent planned to share distributions between employers and members.
The survey of 350 DB schemes, also found among schemes intending to buyout, who also had a surplus, half had yet to agree how this should be used. Of those that had decided, the majority (66 per cent) were returning surplus funds only to the employer, with the remainder sharing distributions with members.
Overall the 2026 Surplus Use and Member Distribution Survey found that 73 per cent of schemes with a threshold for surplus release were adopting a threshold above the low dependency basis.
It also found that 11 per cent of schemes distributed some form of surplus to members in 2025.
The most common approach was to grant a discretionary pension increase, with 7 per cent of schemes granting one in 2025, down from 13 per cent in 2024. Aon says that while funding positions typically improved over this period, this fall is largely due to the more benign inflationary environment.
Aon adds that another key development since last year’s survey is that among schemes that are running-on and which have decided to share part of the surplus with members, 43 per cent intend to use it to provide independent financial advice.
Aon head of member distributions Nick Coates says: “There is growing demand from members for this, and, where it is not offered, there are potential pitfalls where members ‘phone a friend’ – often in the form of artificial intelligence – to inform significant financial decisions.”
He adds: “From a member perspective, our survey suggested the use of discretionary pension increases remained the most popular way of distributing surplus to members. But this is likely to change considerably from April 2027 when there is the option of lump sum provision.
“A key question for some trustees next year, will be whether to provide discretionary pension increases or lump sums as a way of distributing surplus to members. These options will also lead to surplus being shared in radically different ways among members.
Aon partner in the UK endgame strategy team James Patten adds: “Despite 57 per cent of schemes being at least fully funded on a buyout basis – and thus generally having a surplus – the majority remain undecided around its use. It therefore seems that there is all to play for as schemes consider the new surplus flexibilities to be introduced next April.”
He points out for schemes in surplus, whether they are intending to run on or pursue buyout, the majority intend to return surplus solely to the employer. He points out that for schemes looking to run on this may be reviewed by sponsors and trustees again, ahead of the 2027 surplus flexibilities.
Patten adds: “For schemes intending to buyout this decision will often be influenced by scheme rules, with 50 per cent of respondents having rules where the use of surplus on wind-up is ultimately determined by the employer.
“Next year’s flexibilities are likely to prompt conversations around whether the distribution of some surplus – above that needed for buyout – can be accelerated, rather than waiting for the buyout and wind-up process to play out in full.”
He says: “Most schemes are yet to consider a threshold for surplus release. However, where a decision has been reached, it is notable that the vast majority are adopting a threshold generally above the minimum low dependency basis proposed under the new surplus flexibilities.”