Defined benefit (DB) pension schemes—who owns the surplus?
Produced in partnership with Wyn Derbyshire of gunnercooke LLP
Defined benefit (DB) pension schemes—who owns the surplus?

The following Pensions guidance note Produced in partnership with Wyn Derbyshire of gunnercooke LLP provides comprehensive and up to date legal information covering:

  • Defined benefit (DB) pension schemes—who owns the surplus?
  • What is surplus?
  • Who owns the surplus?
  • Ongoing schemes—the courts' views
  • Ongoing schemes—examples of court rulings
  • Winding-up schemes—the courts' views

THIS PRACTICE NOTE RELATES TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES

One of the most controversial issues that can arise in relation to a defined benefit occupational pension scheme is the question of who ‘owns’ the scheme’s ‘surplus’ should there be one. It is a question that can become particularly vexed where the scheme is a ‘balance of cost’ scheme or a ‘non-contributory’ defined benefit scheme, ie a scheme where the employer's contributions meet the cost of providing the scheme's benefits after allowing for:

  1. any member contributions—in a balance of cost scheme those contributions will be fixed, while in a non-contributory scheme there will be none

  2. any scheme investment returns

What is surplus?

There is no legal definition of the term ‘surplus’ and it is not always easy to determine precisely the actual value of any surplus.

In general terms, a surplus is said to exist at any particular time when the actuarially-determined value of the relevant scheme’s assets exceeds the value of the scheme’s liabilities. A surplus is easiest to identify following a scheme wind-up; once all liabilities of the scheme have been secured or otherwise met (including wind-up expenses), any assets remaining will constitute a surplus.

If a scheme is ongoing however, its funding level will fluctuate over time, and any reported surplus is, in reality, a reflection of the