Surplus

Surplus

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 and how it should be used, (eg by paying it to the employer or providing benefit improvements for members). 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:

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

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