Whilst many pension professionals are cautious about releasing defined benefit (DB) pension scheme surpluses, a “substantial” proportion (around 41 per cent) are willing to consider surplus release under more flexible terms, research from Sackers has revealed.

The survey found that 32.76 per cent of respondents said they would ‘never’ consider releasing surplus while the scheme remains ongoing, even where this assumed that surplus is used to augment members’ benefits, whilst 25.86 per cent said they would release surplus only if the scheme remains fully funded on a buyout basis.

However, Sackers said that there was an “encouraging picture” when considering the broader findings, as around 41 per cent expressed willingness to consider surplus release under more flexible terms.

According to the survey, 3.45 per cent would release if the scheme remains 100 per cent funded on low-dependency basis, while 5.17 per cent would require a small buffer of 101-110 per cent, 17.24 per cent would require a larger buffer (more than 110 per cent), and 15.52 per cent said their answer would depend on how much surplus is used for members.

Sackers partner, Tom Jackman, said that the fact that roughly 40 per cent of schemes are potentially open to surplus release under the right conditions indicates a "real opportunity" and given the sheer size of the UK DB market, 40 per cent represents a vast amount of capital.

“With scheme funding levels continuing to improve, greater flexibility over the use of surplus has the potential to unlock new investment into the UK economy, drive genuine innovation across the DB landscape and, at the same time, deliver meaningful enhancements for members, he continued.

“It’s clear there are many deals to be done. Trustees, who are effectively the gatekeepers of surplus, will need to be comfortable that members are getting a fair share of the benefit - but determining how much, in what proportions, and how to structure it is far from straightforward."

In addition to the "obvious factors", such as funding and covenant, Jackman said that trustees must also weigh more nuanced considerations such as existing surplus rules, discretionary practices, and even historic contributions, benefit changes and bulk transfers.

"Each proposal will need to be considered in the context of its own unique circumstances," he stated.

“It will be a challenging task, but it is an opportunity that we believe should be fully embraced. Getting it right is a genuine win-win - for the scheme and its members, for sponsors and potentially for the UK economy.”

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