Organisations representing member-nominated and professional trustees have emphasised the importance of independence during surplus decisions for defined benefit (DB) pension schemes.
The government’s consultation on rules for releasing surplus capital from overfunded DB schemes closes on 2 September. The Department for Work and Pensions is proposing that schemes that are fully funded on a low dependency basis can release surplus capital above this level.
The Association of Member-Nominated Trustees (AMNT) and the Association of Professional Pension Trustees (APPT) have both highlighted the need for boards to be given autonomy and independence in surplus release discussions to ensure members’ interests are protected.
The APPT urged the government to “keep trustees clearly in control” by ensuring the regulations “remove ambiguity between employer consultation and employer consent”.
It also called for the Pensions Regulator to be encouraged to use its existing powers to “identify and intervene in cases where trustees may face undue pressure”.
“The right framework is one that gives trustees confidence to exercise independent judgement, keeps member security at the centre, and avoids unnecessary complexity.”
The AMNT echoed this, stating that trustees “should be free from employer pressure” over whether, how, and how much to release.
Rachel Croft, chair of the APPT, added that the way surplus is released “must not become a process that is either unclear or unworkable”.
“The right framework is one that gives trustees confidence to exercise independent judgement, keeps member security at the centre, and avoids unnecessary complexity,” Croft said.
‘Fierce discussions’ ahead over surplus
Maggie Rodger, co-chair of the AMNT, said: “Surplus distribution is likely to be a topic of sometimes fierce discussion and concern over the coming years. We urge all to remember that meeting a funding threshold should be a permitted power and not be seen as an expectation to pay out.”
She recommended that the origins of any surplus should be identified before decisions are made about how to share out any payments between employers and scheme members.
“Surplus distribution is likely to be a topic of sometimes fierce discussion and concern over the coming years. We urge all to remember that meeting a funding threshold should be a permitted power and not be seen as an expectation to pay out.”
Rodger continued: “The regulatory framework should give trustees genuine discretion to determine how much surplus is safely available, how much should be retained as a buffer, and whether the best outcome is an employer payment, member benefit improvement, contribution reduction, investment in the scheme or some combination of these.
“We must all remember that the future wellbeing of members in retirement is at stake.”
Both associations also called for trustee boards to be given more flexibility over sourcing advice, as multiple inputs may be necessary to reach an informed decision. This is particularly important when taking into account illiquid or hard-to-value assets.
The AMNT stated in its response: “Trustees should have discretion, supported by appropriate advice, to reflect liquidity and valuation uncertainty when assessing what surplus is genuinely available.”
Other proposals put forward include explicit powers to delay or cancel previously agreed payments if conditions change affecting the scheme’s investment portfolio or funding position.
In its response, the Society of Pension Professionals urged the government to make it easier for schemes to release surplus regularly as well as in one-off payments. Other groups have also emphasised the need for changes and additions to the draft rulebook before it comes into force, currently scheduled for April 2027.
