More than three quarters of trustees are likely to make use of the government’s proposed defined benefit (DB) surplus release powers, according to a poll conducted by XPS.
At a webinar this week, 76% of 300 trustees in attendance indicated they were inclined to adopt the new statutory override, which would grant them the authority to change scheme rules in order to distribute pension scheme surpluses.
A second poll found that more than half (57%) of DB pension schemes are now more likely to continue running to build a surplus, following last week’s publication of the Pension Schemes Bill. Only 7% said they were less likely to do so.
Tom Froggett, head of run-on solutions at XPS Group, noted that the results aligned with previous research from May 2024, which found that 75% of trustees supported managing a surplus-generating run-on scheme, and 57% of employers expressed willingness to do so if a statutory override was introduced.
He also suggested that the Department for Work and Pensions’ (DWP) impact assessment of the surplus release proposal, published last week alongside the bill, may have understated how much could be released.
The DWP indicated a central forecast of £8.4bn over 10 years, but XPS Group research has indicated that, with effective implementation, surplus value could reach as high as £40bn.
How the surplus release plans will work
Currently, surpluses can only be released once a DB pension scheme is in wind-up, or in rare circumstances when the Pensions Regulator allows it - as was the case recently with the Littlewoods Pension Scheme.
However, the Pension Schemes Bill, published last week, set out proposed primary legislation for a power that will allow trustees to change their pension scheme’s rules to allow surplus to be released.
Burges Salmon partner Richard Knight and professional support lawyer Louise Pettit explained in a recent blog that the bill will make amendments to the Pensions Act 1995 to facilitate rule changes, but the ultimate shape of surplus release will be left to trustees to decide based on scheme-specific factors.
Speaking at the XPS webinar, Paddy Gavin, a member of the policy team at DWP, said the government expected members to benefit from surplus release as well as employers.
Other areas still to be decided include the tax regime, the threshold that schemes must meet before any surplus can be released, and the approach of the Pensions Regulator (TPR).
In its recent guidance on endgame options, the regulator said: “In situations in which the scheme is likely to remain fully funded on a low dependency basis and there is no realistic risk of employer insolvency, it is unlikely that TPR would have reservations about the release, subject to [trustees] having considered any other relevant matter related to the circumstances of the scheme and the sponsoring employer.”
Burges Salmon’s Knight and Pettit said this did not easily “dovetail” with TPR’s moral hazard approach to scheme funding, which is modelled around insurance buyouts.
“Clear regulatory guidance will be crucial to support trustees in reaching surplus sharing decisions,” they said.
