surplus to requirements

In Wonderland, the White Queen remarked to Alice that she believed as many as six impossible things before breakfast. And the current consultation on surplus is much the same. Government objectives are to make it easier to share surplus with employers and scheme members by removing ‘practical’ and ‘behavioural’ barriers to surplus extraction. New flexibilities are promised ‘intended to balance enhanced options for trustees with prioritising the security of member benefits.’

We have been here before, although motivated on that occasion by concerns that employers were claiming unnecessary tax relief. The 1986 Finance Act required schemes to reduce surplus to a prescribed level by taking a contribution holiday, increasing benefits or repaying surplus to the employer. Trustees and trades unions pushed for benefit improvements. When surpluses eventually turned into deficits which had to be filled by employers, the criticism of those contribution holidays and refunds (although rarely of benefit improvements) was fierce. Greater member security was the priority, bolstered by stricter funding and associated regulatory requirements -and the Pensions Act 2004 completed the job by prohibiting surplus refunds to continuing schemes, unless trustees actively resolved to retain existing powers.

The balance between the employer’s business interests and member security has never been easy but the direction of travel has been inexorably in one direction. However well-intentioned the ideas in the consultation, past experience suggests that whittling down the barriers and attitudes to using surplus will not be easy.

Pensions Archive Trust Director, Jane Marshall

This article was first published in the March 2025 edition of Pensions Age magazine.