Schroders has announced its commitment to running-on its defined benefit (DB) pension scheme and leveraging a portion of the surplus to fund its defined contribution (DC) commitments.

The Schroders retirement benefits scheme (SRBS) trustee will be able to use approximately 10 per cent of the DB section's surplus per annum to support DC members' funding,
operating within key guardrails to ensure that the DB pension remains in a healthy position.

These guardrails will include regular funding levels, covenant checks, and a mechanism to recoup contributions should the DB section's funding level deteriorate.

This latest strategy shift is expected to enable Schroders to continue supporting robust DC outcomes for members while freeing up a meaningful amount of cash flow.

The announcement comes as the UK Chancellor, Rachel Reeves, set out pension reforms earlier this week to allow surplus funds to be invested in the wider economy.

Aon and A&O Shearman provided key actuarial, covenant and legal advice as part of the agreed trustee and sponsor mechanism.

Schroders' chief financial officer, Meagen Burnett, commented: “We are delighted to join the growing list of FTSE 100 companies that are running on and using their DB surpluses to help deliver continued pension security to our people and growth to the UK economy.

"Schroders has worked closely with the wider trustee group to deliver a structure that works for all stakeholders. The current funding position is a testament to our strong investment capabilities in delivering appropriate risk-adjusted returns for pension schemes across the wider group."

The group explained that implementing a cashflow-driven investment (CDI) strategy in 2019 for SRBS resulted in steady improvements to the DB section's funding level beyond its long-term target.

"Given the funding level and additional safeguards we put in place, we were comfortable agreeing on a prudent level of surplus sharing given Schroders' commitments to its pensions," SRBS chair of trustees, Lisa Mundy, stated.

"The negotiations were wrapped into our 2023 valuation discussions, which, combined with separate legal advice, gave us the best understanding of our current actuarial position."

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