More than three-quarters of defined benefit (DB) pension schemes’ trustee boards and sponsoring employers have yet to agree on how surplus will be shared once the new rules come into force next year.
Of those that have, nearly two-thirds (62%) are refunding the employer only from any surplus capital, according to a survey of 350 DB pension schemes.
A further 17% indicated that they planned to distribute surplus to benefit members only, with the remaining 21% sharing distributions between employers and members.
James Patten, partner in the UK endgame strategy team at Aon, said that, while most schemes had yet to decide their surplus strategy, those that have were focusing on a level above the low dependency minimum proposed by the Department for Work and Pensions. Almost three quarters (73%) of those that stated a threshold for surplus release said they would elect for higher than low dependency funding.
Patten continued: “For schemes in surplus, intending to buy out and where a decision has been reached, we again see that the majority intend to return surplus solely to the employer. However, this will often be influenced by scheme rules, with 50% of respondents having rules where the use of surplus on wind-up is ultimately determined by the employer.
“Next year’s flexibilities are likely to prompt conversations around whether the distribution of some surplus – above that needed for buyout – can be accelerated, rather than waiting for the buyout and wind-up process to play out in full.”
Aon’s research also found that 11% of schemes distributed some form of surplus to members in 2025. The most common approach was to grant a discretionary pension increase, with 7% of schemes granting one in 2025, down from 13% in 2024.
Nick Coates, head of member distributions at Aon, said: “A key development since last year’s survey is that, among schemes that are running on and that have decided to share part of the surplus with members, 43% intend to use it to provide independent financial advice.
“There is growing demand from members for this, and, where it is not offered, there are potential pitfalls where members ‘phone a friend’ – often in the form of artificial intelligence – to inform significant financial decisions.”
