Key corporate decision-makers are split over how to prioritise the use of defined benefit (DB) pension scheme surpluses, according to new research by Independent Governance Group.
The professional trustee firm commissioned Censuswide to survey 100 CEOs, chief financial officers and other senior corporate finance professionals for their views on DB surplus use, and found that almost a quarter (23%) believed excess capital should benefit members in some form.
This compared to 21% who felt any surplus refunds should be paid to the sponsoring employer.
Those who said members should benefit were also split, however. Just 11% of respondents thought a surplus should primarily benefit members, while 12% favoured a sharing arrangement between members and the sponsoring employer.
The research also showed a lack of consensus about the primary value of a fully funded DB scheme. Just under a fifth (19%) selected the ability to run on and generate a potential surplus, while 18% cited the ability to improve member outcomes. Self-sufficiency was chosen by 14% of respondents.
Louise Davey, head of policy and external affairs at Independent Governance Group, said: “Trustees are no longer solely focused on closing deficits and securing member benefits. Instead, the effective governance of surplus is becoming the new priority as decision-makers navigate the increasingly varied options that surplus creates. This requires a completely different mindset.
“Surplus isn’t spare capital. It is the product of an investment strategy that must continue to deliver over the long term. Decisions should begin from this logical starting point. Every scheme will have a nuanced picture of how its surplus was generated, so there is no one-size-fits-all approach.
“While market conditions have improved, CFOs shouldn’t become complacent. Surplus can quickly disappear if we aren’t diligent guardians and don’t make decisions that preserve the scheme’s health and long-term value. Good governance is the only way to ensure all potential value is realised for sponsors and members.”
Louise Davey is speaking on surplus use and DB endgame options at the forthcoming Pensions Expert Annual Conference, taking place on 9-10 November at the Fairmont Windsor Hotel. For more information, including the latest agenda and registration, visit our dedicated conference website.
