Many defined benefit (DB) pension schemes are reconsidering their endgame plans in light of improved funding levels and potential changes to how pension surpluses can be used, a survey of Pensions and Lifetime Savings Association (PLSA) members has found.

The research found that one in five (20 per cent) PLSA members said that their investment adviser or consultant suggested they change their approach in light of changed market conditions.

In particular, the PLSA found that over half (56 per cent) think their their sponsor is interested in extracting surplus, while 30 per cent are extremely/very interested.

Among those interested in extracting surplus, over half (55 per cent) said they would use it to invest in the business, while just under a third (32 per cent) would spend it on their DC plan.

Given this, 42 per cent of those surveyed agree that enabling trustees and employers to extract surplus in DB schemes before wind-up will encourage more investment risk to be taken.

However, the majority (73 per cent) believe surplus extraction should always be at trustee discretion.

In addition to this, just under two thirds (65 per cent) said surplus should only be able to be extracted if the surplus in a DB scheme reaches a certain level, while 50 per cent are worried about unreasonable demands from employers to the scheme in relation to surplus release.

Indeed, the PLSA has also advocated for "strict" rules governing the release of surplus with criteria around funding levels and low dependency on the sponsoring employer.

The association also suggested that other conditions that should apply are that the employer must be in a good financial position with a strong covenant in place along agreed regulatory definitions.

PLSA deputy director of policy, Joe Dabrowski, said: “The recent improvement in funding levels has seen an accompanying shift in sentiment among defined benefit schemes.

"Evidence suggests funds and employers are planning to run on for longer, explore different endgame solutions and seek to find ways to utilise surpluses productively.

“Even accounting for their legal duty to ensure the members of their schemes get the pensions they are promised, many pension managers now think there would be benefits, with the right controls, to permitting trustees and employers to put surplus funds to more productive use – for example by enhancing member benefits, DC contributions, or investing in growth.”

"This is positive news for the government at a time when it is looking at unlocking surplus to invest in the UK economy.”

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