The Society of Pension Professionals (SPP) says recent regulatory changes mean DB schemes should now reassess their long-term strategy on surplus use, regardless of whether they plan to release funds.
In a new paper titled ‘DB Surplus Release: risks, rewards & responsibilities’, SPP sets out how surpluses are defined, when extraction may or may not be appropriate, and the potential effects on members, employers, funding and governance. It also outlines the wider implications for the DB market as more schemes move into surplus.
SPP says a structured review will help schemes confirm whether surplus release fits their objectives. For schemes that choose not to release surplus, the process can still reinforce existing plans and reduce the risk of later challenge.
SPP working group chair and member of the SPP covenant committee Alex Beecraft says: “While the factors that drive decisions on surplus release will vary from scheme to scheme, the core themes are simply those that Trustees, employers and advisers have considered over the last decade to reduce risks for members. This should provide confidence that in the right situations the associated risks can be managed, monitored, and mitigated to improve outcomes for all stakeholders.
“This SPP paper serves as a useful tool to quickly, yet comprehensively, identify the risks, rewards and responsibilities associated with surplus release. It should prove useful to a wide range of industry professionals, policymakers and other stakeholders, and support the DB industry’s transition from a culture of wealth preservation to one of wealth creation.”
