Whilst 86 per cent of UK defined benefit (DB) pension schemes are currently running at a surplus, more than a third (36 per cent) of companies with DB pension schemes need advice on how to make use of that surplus, research from Law Debenture has revealed.

The research found that 76 per cent of smaller schemes, with assets valued between £100m-£249m, are running at a surplus, rising to 90 per cent for schemes between £250m-£499m and to 93 per cent for schemes between £500m-£999m.

Given this improved funding, LawDeb stressed the need for businesses behind these schemes to have a strategy in place to consider how they will best utilise it.

However, the firm acknowledged that this can prove challenging, especially for those who are in "unfamiliar" territory", revealing that a third (33 per cent) of respondents are still discussing how they would like to use it, while 1 per cent were unaware they could do anything with the surplus.

Others had a clearer idea though, as a further third (33 per cent) said they plan for it to be paid into the business or invested in the firm, while 32 per cent plan to pay out the surplus to scheme members, and 30 per cent plan to use the surplus for business bonuses.

In addition to this, just over a quarter (28 per cent) said they planned to look to donate the surplus to charitable causes.

LawDeb found that the outlook was particularly positive for firms with schemes in surplus and plans to buy in, buyout or consolidate, as 69 per cent said they plan for the surplus to be paid to the company - subject to the Trust Deed and Rules, and 61 per cent intend to use the surplus to increase member benefits.

In addition to this, over half (56 per cent) of respondents plan to share the surplus between members and the sponsor and 3 per cent are still discussing what to do with their surplus.

However, not all are looking to run on or make use of the surplus at all, as LawDeb found that over three quarters (76 per cent) of respondents do not currently plan to run on, with 41 per cent believing the cost of advice for running on is too expensive and 36 per cent believing there is too much investment risk.

In addition to this, 2 per cent of respondents have not considered run on as an option for their schemes at all.

The firm said the risk associated with running on is a “recurring worry” as 31 per cent of respondents believe there is too much regulatory and governance risk.

Furthermore, 27 per cent of respondents think the risk of legal challenges is too high, while a quarter (25 per cent) are cautious that the scheme may return to the deficit or need further contributions.

The research also suggested that run on presents itself as more challenging than buyout as 27 per cent of firms think it is too expensive to have staff manage the scheme, while 25 per cent said it takes too much time and brain power to do so.

Additionally, 9 per cent don't have the capacity to manage their scheme were it to run on, while 18 per cent admitted they would not know where to begin.

Commenting on the findings, Law Debenture managing director, Sankar Mahalingham, said: “Surplus is not a novel concept within the pensions industry but harnessing it for its full potential can prove to be tricky.

“This becomes even more concrete with the government’s potential pensions reforms to utilise these funds to support economic growth - while still protecting members’ benefits.”

"Therein lies the role of an independent trustee, who should proactively engage with the sponsor, while recognising their responsibility to ensure they follow the powers under the Trust Deed and Rules, as well as acting in line with the purpose of the trust.

"An independent trustee can work alongside firms towards making the best decisions, both for the business and for members, rather than companies not engaging in considering which routes would be most beneficial - and potentially missing out as a result.”

This article was first published on our sister website, Pensions Age.

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