Trustees of defined benefit schemes are warning that ‘significant’ government pressure to utilise surpluses funds could conflict with their fiduciary duties.
Research by Barnett Waddingham (BW) among 50 professional trustees found that all reported feeling growing pressure on how future schemes surpluses should be used, with 20 per cent of respondents describing this as ‘significant’.
Changes in the Pension Schemes Act will allow for greater flexibility over scheme surpluses, potentially to release money to both sponsoring employers and members, while also continuing to invest to help stimulate economic growth.
This ‘The Retirement Runway’ research found that schemes are increasingly reviving endgame strategies n light of these changes, with questions around surplus generation now coming to the forefront of trustee decision-making.
Against this background, nearly two-thirds (62 per cent) of professional trustees said they would be more likely to consider run-on strategies to generate surplus under reforms now enacted through the Pension Schemes Act 2026.
BW, now part of Howden, found that more than four in five (82 per cent) of these trustees agreed that low dependency is now a more appropriate long-term funding target than buy-out, while medium-sized schemes are now most likely to favour run-on with employer support (50 per cent).
The findings point to a significant shift in scheme strategy over the last 12 months, Among medium-sized schemes, 35 per cent have moved from self-sufficiency to run-on, while two-thirds (67 per cent) of large-sized schemes have shifted from buy-out to self-sufficiency.
Trustees indicate that run-on strategies are increasingly being viewed as a way to generate additional value from well-funded schemes. Among medium-sized schemes pursuing growth strategies, over half (58 per cent) said they are exploring generating a ‘super surplus’ for discretionary member benefit increases.
An equal proportion said surplus generation could support refunds for the sponsoring employer.
Meanwhile, smaller schemes remain more focused on strengthening their funding positions: over half of trustees of these schemes (53 per cent) saying growth-focused investment strategies are aimed at reducing deficits.
Barnett Waddingham managing partner Alex Pocock says: “DB schemes are entering a new phase. Improved funding positions mean most trustees now have more options on the table than they did just a few years ago: whether that’s buy-out, superfund, low dependency, self-sufficiency or run-on.
“In a sense it’s not surprising at all – many schemes that wanted to buy-out have now done so, leaving those still in the market pursuing flexibility.
“The debate around surplus use is a natural consequence of that progress. Trustees will recognise the opportunities that surplus capital can create, but our findings show that they’re also firmly focused on their responsibilities to act in members’ best interests.
“It’s understandable that policymakers want to create greater flexibility and make better use of surpluses, but that doesn’t have to come at the expense of member outcomes. The recent surplus proposals are a positive step forward, but trustees will still need the confidence to make use of these new flexibilities while remaining aligned with their fiduciary duties. As more schemes weigh up these options, balancing member, sponsor and trustee interests will be critical.”