Most DB pension schemes undecided on surplus use – Aon UK

“In many cases, we expect this will be reviewed again by sponsors and trustees ahead of the 2027 surplus flexibilities.

“For schemes in surplus, intending to buyout and where a decision has been reached, we again see that the majority intend to return surplus solely to the employer.”

He said: “However, this will often be influenced by scheme rules, with 50% of respondents having rules where the use of surplus on wind-up is ultimately determined by the employer. 

“Next year’s flexibilities are likely to prompt conversations around whether the distribution of some surplus – above that needed for buyout – can be accelerated, rather than waiting for the buyout and wind-up process to play out in full.

“Most schemes are yet to consider a threshold for surplus release.”

He added: “However, where a decision has been reached, it is notable that the vast majority are adopting a threshold generally above the minimum low dependency basis proposed under the new surplus flexibilities. 

“For example, this might involve including a buffer above the low dependency basis in the threshold for surplus release.”

Nick Coates, head of member distributions at Aon, said: “From a member perspective, our survey suggested the use of discretionary pension increases remained the most popular way of distributing surplus to members. 

“But this is likely to change considerably from April 2027 when there is the option of lump sum provision. 

“A key question for some trustees next year will be whether to provide discretionary pension increases or lump sums as a way of distributing surplus to members.”

Coates added: “These options will also lead to surplus being shared in radically different ways among members.

“It is also interesting to see that just 7% of respondents had provided such an increase – down from 13% in 2024. 

“Funding levels generally rose over the period, but this change is likely to have been driven by the more benign inflationary environment.”

He said: “The new flexibilities will bring future distributions of surplus to members into sharp focus for many trustees next year, particularly given the expected need to inform members of any lump sum returns of surplus to sponsors.

“A key development since last year’s survey is that among schemes that are running-on and which have decided to share part of the surplus with members, 43% intend to use it to provide independent financial advice. 

“There is growing demand from members for this, and, where it is not offered, there are potential pitfalls where members ‘phone a friend’ – often in the form of artificial intelligence – to inform significant financial decisions.”