Nearly two-fifths (39 per cent) of defined benefit (DB) pension trustees are uncomfortable with the government's proposed surplus reforms, Standard Life has found, expressing mixed views on whether the plans would be in scheme members' best interests.

The government's Pension Schemes Bill aims to unlock DB surpluses to support member outcomes and encourage economic growth.

But when asked to what extent the current proposals were in scheme members’ best interest, the research found that only 32 per cent of DB trustees felt very or generally comfortable with the reforms, while 29 per cent had no opinion.

This comes amid growing concerns from campaign groups as to what the changes will mean in practice, with the BP Pensioner Group (BPPG) suggesting that the 50:50 sharing of surplus envisioned in the bill's impact assessment could be "no more than an unrealistic aspiration" without more specific directions or controls.

There was also variation in how industry experts expect surpluses to be used, as while 38 per cent of trustees surveyed highlighted interest in options such as enhancing member benefits, a further 38 per cent were more interested in supporting sponsor business growth, while 35 per cent would be most interested in reducing defined contribution (DC) employer contributions.

Standard Life highlighted this as evidence of the need for bespoke approaches and underlying the challenge for regulation in making sure that decisions are being made in the right way and reflect both trustee and sponsor considerations.

Standard Life pension risk transfer and origination managing director, Claire Altman, commented: “While there is growing interest in how proposed flexibilities can be applied in practice, this research shows that views on surplus extraction are mixed. Trustees are right to be cautious.

"There are trade-offs at play, both in trustees’ ability to act now to secure members’ benefits, and in the legislative uncertainty that comes from waiting for surplus rules to be clarified.

"Trustees recognise the value of certainty gained from insurance as a secure and well-proven solution, and our research reflects this, with 48 per cent of schemes favouring buy-in as their endgame strategy.

“This diversity of trustee expectations reflects the broader debate within the industry and within schemes themselves about the role of surplus in scheme strategy."

Altman admitted that it is hard to strike the right balance between supporting the sponsoring employer, improving member outcomes and supporting broader workforce benefits, while also considering the fiduciary and legal implications of surplus extraction, particularly in the absence of clear legislative guidance.

In particular, she pointed out that, for trustees and sponsor employers, there will be multiple considerations that have to be factored in when thinking about surplus.

"However, for trustees, surplus extraction decisions will hinge on confidence that this aligns with their duties to act in members’ best interests," she clarified,

"These decisions are not easy at the best of times but are even more challenging when we are expecting legislation to be further developed.

"Trustees are also facing into potentially changing dynamics, as covenants are not static, nor are longevity projections or market conditions and they all factor in, to a lesser or greater extent depending on scheme-specific circumstances, to how decisions are reached.”

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