UK defined benefit (DB) pension schemes are increasingly moving away from buyout as the default endgame, although many have yet to establish the governance frameworks needed to manage future surplus, according to data from Independent Governance Group (IGG).

The research, based on responses from 133 schemes, showed that a low dependency approach was now the most commonly pursued strategy, adopted by around 43 per cent of schemes, compared with 22 per cent running on and 35 per cent targeting buyout.

The IGG suggested that the 'key message' was that trustees were considering a broader range of long-term options, rather than treating buyout as the default destination.

The shift comes amid expectations that the DB market will retain significant scale in the years ahead.

The Pensions Regulator’s (TPR) latest DB universe projections indicated that, even with substantial buyout activity over the next decade, the sector could still hold between £0.6trn and £0.7trn in assets by 2035.

However, IGG’s findings revealed that planning for surplus had not kept pace with improving funding levels.

Indeed, almost two-thirds (64 per cent) of schemes surveyed have yet to decide how they would approach generating surplus once they reach their long-term funding objective.

Just 17 per cent reported having a defined plan for sharing future surplus, while 14 per cent said their approach was partial or unclear, and 69 per cent had no plan in place.

IGG trustee director, Tim Giles, said the data reflected a market adjusting to a significantly improved funding environment.

“The data reflects a market that is still working through a range of possible endgame outcomes on the back of a radically different funding environment,” he continued.

“Low dependency is clearly the most popular option, but there is also a clear shift towards schemes keeping their options open to consider what will deliver the best outcome for stakeholders.

"And while running on and deploying a surplus is becoming more popular again, for many schemes it is almost uncharted waters – the practical and governance questions around surplus are still relatively new.

“As funding levels improve, and governance capability develops alongside them, schemes are gaining access to options that may not previously have been available.

“The challenge is increasingly about having the right frameworks in place to navigate that wider range of endgame paths – with clear objectives, agreed decision-making and a shared understanding between trustees and sponsors of what different outcomes could involve.

“Schemes that have done more of that groundwork are likely to be better placed to respond in a measured way as their position evolves, for the benefit of both members and sponsors.”

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