With the UK Government planning to relax restrictions on companies withdrawing surplus funds from defined benefit (DB) pension schemes to support the UK economy, much of the industry discussion has centred around how DB members can share in the benefits — often through discretionary pension increases for retirees.
But what about the 661,000 active members still accruing benefits in the 23% of DB schemes that remain open?
There's a strong case for active members to be first in line for surplus sharing:
- They've felt the biggest impact of past cuts. Many active members have the smallest pensions relative to salary and service, as companies reduced DB benefits over the years due to rising costs. If they bore the brunt of past reductions, shouldn't they be first to benefit from any surplus?
- They are still driving the business forward. As current employees, these members are actively contributing to company growth — so it makes sense to reward them when financial conditions improve
- The cost is relatively low. In schemes where benefits are still accruing, active members typically make up a small proportion of total liabilities, meaning the cost of benefit improvements would be modest relative to the overall surplus
So why not start surplus sharing by enhancing benefits for active members — at least bringing them up to the levels their former colleagues enjoyed?
At WTW, we are already supporting companies and trustees with surplus-sharing agreements, including:
- Reducing member contributions or increasing accrual rate. To harmonise active member benefits for c700 active members, alongside the Trustees agreeing to the Company taking a full contribution holiday
- Removing pensionable salary and pension increase caps. Another agreement saw a company use surplus funds to lift these restrictions, while also committing to additional defined contribution contributions
The Government is expected to provide further details on surplus distribution relaxations on 26 March 2025 with further details by the end of spring. However, there's no need to wait — improving active members' benefits through surplus sharing can start now!
If you'd like to explore your options, please contact Mark Daniel or Claire Kelly.
