Changes in legislation are needed to ‘unlock’ defined benefit (DB) schemes’ surpluses that could generate £400bn of capital over the next 10 years, analysis by Hymans Robertson has found.

The firm calculated that moving towards growth-orientated assets, even at 2 per cent per year, alongside accessing current surpluses, could unlock £400bn worth of capital over the next decade.

It argued that this “simple change” could benefit all DB scheme stakeholders, including employers, pensioners and earners across all salary levels.

Alongside these beneficiaries, Hymans Robertson said that the key and biggest benefit could be to the wider economy.

Hymans Robertson felt that locking capital in DB schemes was a “missed opportunity”, with the largest schemes in the UK accounting for almost £1trn of assets.

With current regulations and legislation prohibiting the ease with which greater surplus could be accessed, the firm argued that current restrictions must be lifted, and the forthcoming Pensions Bill must include a statutory override that would provide greater flexibility for the distribution of surplus funds for any scheme.

Additionally, to further incentivise this change, Hymans Robertson urged the government to look at offering tax benefits, such as tax relief for sponsors where there is re-investment of surpluses into UK productive assets or for the sharing of surpluses with other workplace pension schemes.

“Members must remain at the heart of any changes that are made within the DB surplus sphere and safeguarding their benefits must always be the priority,” said Hymans Robertson head of corporate DB endgame strategy, Sachin Patel.

“The current system, as is, supports this. However, there has been a huge shift in the markets – with many schemes now much better-funded, and therefore resilient to economic events and in surplus.

Patel argued that now was the time, with a relatively new government in place, to lift regulatory and legislative constraints around the use of the surplus via the forthcoming Pensions Bill.

“It’s also not just about accessing surplus today, but building a long-term model to create real value for all stakeholders,” Patel continued.

“Currently the largest schemes in the UK have nearly £1trn worth of assets. If these DB schemes were able to distribute future surpluses, and use it for other purposes, the ability to boost economic growth while maintaining pension security could be a once-in-a-generation opportunity.

“Clearer guidance on trustee fiduciary duties, as well as a re-alignment of the Pensions Act 2021, to not inhibit taking risk in a measured approach, would give DB pension schemes the opportunity to make a real difference.

“The potential distribution of DB surpluses to less adequate DC pots or improving DB benefits that haven’t kept up with inflation, are just some of the ways in which this change could be transformative for individuals across the UK. The potential is endless – this could be the revival that DB pensions need, encouraging schemes to run on and continue to build up and distribute surplus.

“Whilst there would be a move towards greater growth assets such as capital, pension schemes will naturally still invest in gilts, helping to maintain long-term confidence in the UK market – a win-win for all involved.”

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