Some 93% of UK businesses with closed defined benefit (DB) pension schemes larger than £500m (€596m) plan to request access to surplus in their pension schemes once rules are amended, according to research from Brightwell, the largest single employer corporate pension scheme in the UK.
This comes as the UK government is looking to amend rules around surplus extraction, suggesting that the total surplus within DB pension schemes stands at £160bn.
Brightwell’s research found that 43% of those surveyed want to access the scheme surplus in the ‘near term’ while over a quarter (27%) said they will request access immediately and 16% want to access in the medium term and 7% in the longer term.
Nearly half of the respondents (49%) want to use the surplus to reinvest in UK operations.
Additionally, 44% intend to share it with members of the DB scheme, 42% plan to reinvest in global operations, 40% would distribute the funds to shareholders, while 33% would use them to cover costs and expenses associated with running their defined contribution (DC) scheme. More than one in five (22%) of respondents said the surplus released would be used to directly fund contributions to the DC scheme.
In the largest agreement of its kind, last month Abrdn and the trustee of its main DB pension plan agreed to unlock part of the plan’s £800m surplus to fund the cost of DC benefits to current employees.
A third of respondents (33%) to Brightwell’s survey said that having easier access to surplus would encourage them to run the pension scheme on for longer rather than opting for a buyout with an insurance company. Nearly two-thirds (63%) said it would encourage a more return-seeking investment strategy to help generate future surplus.
Gradual release ‘most prudent’
The research also highlighted a shift in how companies see their pension scheme, Brightwell said. According to findings, a third of the respondents said they now view their pension scheme as an asset, compared with 28% who view it as “something they want off the balance sheet”.
Meanwhile, 20% said they can see that the pension scheme has the potential to be an asset but comes with too much management and risk, while 19% said their pension scheme was always something they have managed closely and want to retain control over.
Morten Nilsson, chief executive of Brightwell, said a “gradual release would be the most prudent approach to prevent any regret risk”.
He added: “Running on a pension scheme isn’t without challenges, so having the right investment strategy and expertise is key.”
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