The majority of corporate pension decision makers are in favour of maintaining a surplus buffer above the legal minimum, but opinions are divided on how surplus should be used, analysis from Independent Governance Group (IGG) has shown.

It’s The Pensions Balancing Act report found that 67 per cent of chief financial officers (CFO) felt a buffer above the legal minimum should be retained before a surplus is used or distributed.

This included 21 per cent who believed defined benefit (DB) schemes should remain fully funded on a buyout basis.

However, CFOs were split on how the surplus should be used, with the most common response being that it should support the employer (21 per cent).

More than one in 10 (12 per cent) felt the surplus should be shared between members and the employer, while 11 per cent said scheme members should be the primary beneficiaries.

When asked about the wider value of fully funded schemes, corporate pension decision makers remained divided.

Nearly a fifth (19 per cent) said the ability to run on and generate further long-term value was the greatest benefit, followed by improving member outcomes (18 per cent) and the ability to become self-sufficient on a cost basis (14 per cent).

IGG noted that no single idea had emerged as dominant, demonstrating the uncertainty among sponsors whose schemes often held significant surpluses.

“Trustees are no longer solely focused on closing deficits and securing member benefits,” commented IGG head of policy and external affairs, Louise Davey.

“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.”

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