Funding strength leading DB schemes to think differently about surplus and endgame

A DB pension fund’s endgame refers to how the trustees and sponsors of the scheme decide how to deliver benefits to members in the long-term. This can mean transferring the scheme’s assets and liabilities to an insurer or superfund, or continuing to operate the fund with the aim of investing beyond full funding and improving benefits for members.

After talking for decades about a funding crisis in the nation’s £1 trillion defined benefit (DB) pension scheme sector, successive interest rate rises and prudent scheme management mean final salary schemes now have £239bn aggregate surplus.

Meanwhile, the Government has signalled its intention to relax the rules governing how final salary schemes can use their surplus.

The PLSA has surveyed its members to understand how these changes are influencing trustees’ plans.

One in five (20%) report that their investment adviser or consultant suggest they change their approach in light of changed market conditions.

Over half say their sponsor is interested in extracting surplus (56%), with three in 10 extremely/very interested (30%).

Among those interested in extracting surplus, over half say they would use it to invest in the business (55%), with a third saying they would spend it on their DC plan (32%).

Two-fifths (42%) of those surveyed agree that enabling trustees and employers to extract surplus in DB schemes before wind-up will encourage more investment risk to be taken.

Reflecting pension trustees’ duty to act in the best interests of members and protect benefits, more than seven in 10 (73%) believe surplus extraction should always be at trustee discretion. Two thirds (65%) say surplus should only be able to be extracted if the surplus in a DB scheme reaches a certain level. Half are worried about unreasonable demands from employer(s) to scheme in relation to surplus release (50%).

The PLSA advocates for strict rules governing the release of surplus with criteria around funding levels and low dependency on the sponsoring employer. Other conditions that should apply are that the employer must be in a good financial position with a strong covenant in place along agreed regulatory definitions.

Joe Dabrowski, Deputy Director of Policy at the PLSA, said: “The recent improvement in funding levels has seen an accompanying shift in sentiment among defined benefit schemes. Evidence suggests funds and employers are planning to run on for longer, explore different endgame solutions and seek to find ways to utilise surpluses productively.

“Even accounting for their legal duty to ensure the members of their schemes get the pensions they are promised, many pension managers now think there would be benefits, with the right controls, to permitting trustees and employers to put surplus funds to more productive use – for example by enhancing member benefits, DC contributions, or investing in growth.”

This is positive news for the Government at a time when it is looking at unlocking surplus to invest in the UK economy.”

The PLSA received 96 survey responses from members between 13 and 25 February 2025.

Mark Smith, Head of Media Relations
020 7601 1726 | [email protected]

Cali Sullivan, Senior PR Manager
020 7601 1761 | [email protected]