Majority of trustees support UK surplus extraction plans

A majority of UK pension scheme trustees support the government’s surplus extraction plans, according to a poll conducted by consultancy XPS Group.

In a recent survey conducted during a webinar organised by XPS and attended by more than 300 trustees, employers and pension managers, 70% said they supported the government’s intention to allow defined benefit (DB) schemes to extract their surplus.

It also showed that 43% of those polled indicated that they would either review their strategy plans or that they had yet to finalise their plans, indicating that a meaningful number would now consider the impact of any changes.

The remaining 57% said the announcements would make no difference to their strategy, with 17% of those polled already pursuing run-on, and 40% pursuing insurance buyout.

Tom Froggett, senior consultant at XPS Group, said: “The government will be encouraged that there is support for its proposals, particularly that a meaningful number of schemes are expecting to review, or are yet to finalise, their long-term strategy following last week’s announcement.”

He said the focus now turns to how to implement the DB surplus flexibilities effectively and safely.

“We are calling for two things: first, a simple statutory override to enable surplus to be released, and second, regulatory guidance or a code of practice that offers trustees a comprehensive blueprint for running DB schemes on to build and use surplus safely and effectively,” he added.

Funding levels

According to LCP figures, the combined pensions surplus for the UK schemes of FTSE 100 companies is estimated to be around £70bn (€84bn) as at 31 January 2025, up from £65bn as at 31 December 2024.

This is about £25bn higher than the same period last year – an improvement that LCP has said is a real positive for schemes and their sponsors, and follows strong aggregate year-end surplus positions every year since 2020.

On the low-dependency level, which is the figure the government is expected to focus on, LCP estimates the surplus to be around £50bn.

It said: “This represents significant value to sponsors and DB scheme members, and a real change in the DB pension scheme endgame landscape. With these potential changes on the horizon, we view that there is an opportunity for schemes and sponsors to get on the front foot, plan for the changes and ensure they make the most of future flexibility in the rules to improve outcomes for all stakeholders.”

Aaron Chaderton, consultant and part of the endgame team at LCP, added: “Ever since the 2023 Mansion House speech and the continuation of strong DB funding levels, it has felt like momentum has been building for schemes to run on. The Treasury’s announcement last week has validated the excitement in the industry, and it is going to be extremely exciting to see how the market develops as a result.”

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