Defined benefit (DB) pension scheme surpluses should not simply be viewed as “capital available for distribution”, Hughes Price Walker (HPW) has warned, as trustees consider the potential impact of proposed changes to the surplus regime.

The actuarial, consultancy, investment and administration provider argued that trustees should instead treat surpluses as strategic assets, with decisions balancing member security, employer objectives and the scheme’s long-term resilience.

HPW director, Ray Hughes, noted that improved funding positions had created new opportunities for schemes and sponsors, but cautioned against treating surplus release as an automatic objective.

“The key question is how surplus fits within a scheme’s broader funding and risk management strategy, and whether retaining, sharing or releasing it best supports the long-term interests of both the scheme and its members,” he said.

The comments come as the Department for Work and Pensions considers reforms to provide schemes with greater flexibility over the use of DB surpluses.

However, HPW warned that any decision would need to reflect the scheme’s funding position, investment strategy, employer covenant and endgame objectives.

“One of the biggest challenges will be balancing the interests of different stakeholders,” Hughes continued.

“While employers may have an interest in benefiting from surplus, trustees must continue to act in accordance with their fiduciary duties and consider whether members should also benefit from any surplus position.”

With this in mind, the firm urged trustee boards to review their scheme rules and existing surplus powers, and to test whether the surplus would remain sustainable under different economic scenarios.

It added that boards should also review whether their investment strategy remained aligned with the scheme’s objectives and seek actuarial, legal, covenant and investment advice.

“Ultimately, the question is not simply whether surplus can be released, but how it fits within the wider strategy for the scheme,” Hughes stated.

“Different schemes will have different objectives, whether that is progressing towards buyout, pursuing a run-on strategy or maintaining additional resilience against future uncertainty.

“Good governance and a clear decision-making framework will be essential to ensuring any surplus decisions are sustainable and aligned with the long-term interests of the scheme and its members.”

---