Measures in the Pension Schemes Bill are designed to make it easier for trustees to release surplus assets from overfunded defined benefit pension schemes. Brightwell’s Amy Mankelow explores data showing that sponsoring companies are keen to put this money to work.
Throughout the discussions on surplus release, one figure has been cited time and again: £160bn. This figure is the amount of surplus that currently exists in defined benefit (DB) pension schemes on a low dependency basis.
But, following the publication of the Pension Schemes Bill, the Department for Work and Pensions’ (DWP) impact assessment suggested that just 5%, or around £8.4bn, of surplus after tax would be released over the next 10 years as a result of new rules.
The DWP’s modelling assumes few schemes will choose to run on, with the majority opting to move to buyout. However, while it’s very unlikely £160bn will be unlocked, it also seems unlikely that it will be as low as £8.4bn.
How sponsors plan to use DB surplus
Research we conducted in January 2025 with trustees of 21 large corporate DB schemes with more than £1bn in assets found that over a third (38%) plan to run on, 24% plan to buy out and 38% have not yet decided on their endgame.
Half of the undecided schemes and 40% of those targeting buyout would consider running on if the government makes it more attractive.
From a corporate perspective, there’s also a strong interest in surplus. In May, we surveyed 100 finance decision makers within companies that have closed DB schemes larger than £500m via Censuswide.
“Surplus should only be released where schemes are sufficiently well-funded and trustees are satisfied it is safe to do so.”
Amy Mankelow, Brightwell
The vast majority (93%) of businesses surveyed said they planned to request access to the surplus in their pension schemes. Nearly half (49%) said they planned to reinvest this surplus into their UK operations, supporting the government’s ambitions.
Additionally, 44% intend to share it with members of the DB scheme, 42% plan to reinvest in global operations, and 40% would distribute the funds to shareholders.
A third (33%) said they would use the surplus to cover costs and expenses associated with running their defined contribution (DC) scheme. More than one in five respondents (22%) say the surplus released would be used to directly fund contributions to the DC scheme.
Take care to release surplus responsibly
Up until now, UK businesses have had full responsibility for the downside of their DB pension schemes but very limited access to the upside. The changes will introduce some welcome symmetry into the equation and provide a clear incentive for employers to run their pension schemes on rather than buying them out with an insurer – previously a path viewed as very much the gold standard.
For this reform to succeed, care needs to be taken. Surplus should only be released where schemes are sufficiently well-funded and trustees are satisfied it is safe to do so. A gradual release would be the most prudent approach to prevent any ‘regret risk’.
For schemes planning to run on to generate future surplus, having a well-considered, intentional investment strategy supported by the right expertise is essential. Over time, increased flexibility on surplus release could deliver some genuine economic benefits.
Amy Mankelow is head of communications and external relations at Brightwell, which runs the BT Pension Scheme.
