Overfunded defined benefit schemes need to understand the history of how their surplus came about before they can start detailed discussions on how this should be allocated to employer and members, one consultancy has said. 

More than 80% of DB schemes were in surplus on a low dependency basis at the end of September 2025, with an estimated £170bn of surplus assets, according to the Pensions Regulator.

New rules coming into force in April next year will give trustees the power to reduce this surplus, down to a maximum of a full low dependency funding level, paying the excess sums to either the employer, members or both, and TPR has already put out a statement outlining its thinking to aid trustees' discussions with employers. The regulator will consult on more detailed surplus guidance later this year. 

The government has written trustee agreement to surplus sharing into the legislation and has removed tax rules that could have created a barrier for making lump sum payments to members. Both are potentially raising expectations that members will benefit, and future disputes about who should have how much are almost certain.   

However, before any discussion begins, consultancy Hymans Robertson said the first thing to consider is the history of the surplus, publishing a short paper on this. The approach appears to be borne out in case law, though some lawyers say contributions might not automatically result in surplus entitlement – the purpose of contributions can also be a factor, for example. 
   

   

   

“There are strong views on all sides when it comes to pension scheme surplus. For some, the starting point is that all surplus belongs to the employer. For others, there are clear expectations that members should benefit. The challenge is that these positions are often formed before there has been any detailed discussion about how the surplus actually came about," said partner Martin Potter.   

Potter warned that without engagement, expectations could become increasingly difficult to reconcile. 

"That's why we believe trustees and employers should establish a clear, objective understanding of their scheme's journey back to surplus before making decisions about how any excess assets might be used," he said. “Surplus history analysis helps schemes move beyond assumptions and focus on evidence. Looking at factors such as employer contributions, investment returns and member experience over time provides valuable context for discussions about fairness and the appropriate use of surplus."  

Potter said there might not be a mathematically ‘correct’ answer to the surplus-sharing question, but that schemes that understand their history will be in a better position to deal with the contentious surplus sharing issue.  

While DB members might be hoping for a slice of surplus – and indeed some have already received this – companies could prefer to use DB surplus for DC employer contributions, constituting a substantial cash benefit while avoiding a 25% tax charge for accessing pension surplus as long as both schemes are sections of the same trust. Paying DC contributions with surplus could also create the illusion of benefitting members, though the benefit is entirely on the side of the employer if contribution levels are unchanged.