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22 / 07 / 2025
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UK businesses poised to put pension scheme surplus to work
Throughout the discussions on surplus release, one figure has been cited time and again – £160bn.
This figure is the amount of surplus which currently exists in defined benefit pension schemes on a low dependency basis.
But, following the publication of the Pension Schemes Bill, the DWP’s impact assessment suggested that just 5% or just around £8.4bn of surplus after tax would be released over the next 10 years as a result of new rules.
DWP’s modelling assumes few schemes will choose to run on with the majority opting to buyout.
While it’s very unlikely £160bn will be unlocked, it also seems unlikely that it will be as low as £8.4bn.
Research we conducted in January 2025 with trustees of 21 large corporate DB schemes over £1bn found that over a third (38%) plan to run on, 24% plan to buy out and 38% have not yet decided on their endgame.
Half of undecided schemes and 40% of those targeting buy-out would consider run-on if the government makes it more attractive.
From a corporate perspective, there’s also strong interest in surplus. In May, we surveyed 100 finance decision makers within companies that have closed defined benefit schemes larger than £500 million via Censuswide.
The vast majority (93%) of businesses surveyed said they planned to request access to the surplus in their pension schemes.
Nearly half (49%) said they plan to re-invest this surplus into their UK operations supporting the government’s ambitions.
Additionally, 44% intend to share it with members of the defined benefit 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. Over one in five (22%) of respondents say the surplus released would be used to directly fund contributions to the DC scheme.
Up until now, UK businesses had full responsibility for the downside of their DB pension schemes but, very limited access to the upside. The changes will introduce some welcome symmetry into the equation and provide a clear incentive for employers to run their pension schemes on rather than buying them out with an insurer – previously a path viewed as very much the gold standard.
But, for this reform to succeed, care needs to be taken. Surplus should only be released where schemes are sufficiently well-funded and trustees are satisfied it is safe to do so. A gradual release would be the most prudent approach to prevent any regret risk.
For schemes planning to run on to generate future surplus, having a well-considered, intentional investment strategy supported by the right expertise is essential. Over time, increased flexibility on surplus release could deliver some genuine economic benefits.
If you’d like to know more about Brightwell, get in touch at: hello@brightwellpensions.com
