As the FT notes this morning:
Whenever there are pension surpluses, which imply that corporate pension funds are adequately funded, the companies sponsoring such funds demand the right to have their money back.
This always ends in tears.
When will we learn that pensioners have a right to their money, and it no longer belongs to their employers?
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
“When will we learn that pensioners have a right to their money, and it no longer belongs to their employers?”
Cap’n Blob Maxwell would disagee with you – & of course it all ended up well for him (& his family) didn’t it?
As for the ministers – who did they meet, what was said & what promised by who to whom? when?
Were yachts, footy tickets, holidays, jobs (for offspring etc) part of the conversation?
Corruption, LINO and other four letter words.
Right, so let me get this straight: Companies spot a surplus in their pension funds – which, let’s be honest, usually happens because a) markets got lucky, b) actuaries napped through a decimal point, or c) Alan from Accounting finally fixed the spreadsheet – and their first thought is:
“QUICK, DEPLOY THE MONEY VACUUM BEFORE THE PENSIONERS NOTICE!”
The FT’s spot on. This isn’t just “demanding the right to have their money back.” It’s like your dog “demanding” the right to your steak because it briefly touched the floor. Entitlement with a side of amnesia.
Here’s why this circus ends in tears (besides the obvious fact that retirees prefer cash over Kleenex):
That “surplus” isn’t Monopoly money CEOs won passing GO. It’s deferred wages – money earned by workers who trusted their employer not to play Scrooge McDuck with their retirement. Taking it back is like a restaurant charging you for “excess ambience” because you didn’t finish your breadsticks.
Companies always forget the pension fund is not a corporate slush fund. It’s like your weird uncle “borrowing” from the tip jar at a family BBQ. Sure, he promises to repay it, but next thing you know, he’s bought a flamingo-shaped pool float and the jar’s empty. When markets dip, deficits reappear, and suddenly it’s: “Why is everyone so upset? We only took what was theirs!”
Step 1: Raid surplus → Step 2: Markets fall → Step 3: Pension deficit → Step 4: Beg government/future workers for bailouts. It’s the corporate version of eating your emergency chocolate during the emergency. Predictable? Yes. Tragic? Absolutely.
If companies really want “their money” back from pension funds, let’s rebrand it:
The “Oops, We Underpaid You For Decades” Reparation Fund
The “Retirees Deserve Yachts Too” Equity Initiative
Or simply: STOP TOUCHING GRANDMA’S MONEY, JAMES.
Pension surpluses belong to pensioners like interest belongs to savers and WiFi passwords belong to caffeine-addicted house guests. Hands off. Next time a CEO eyes that surplus, just whisper: “Remember 2008. Remember the tears. Remember the flamingo float.”
Until then, retirees should start hiding their pension pots in Swiss vaults. Or maybe just invest in Kleenex futures.
Much to agree with
Labour could call it the Robert Maxwell Pergamon Press Act – he was a Labour man.
They do seem to get confused about what they want though, compare with this, for example…
https://www.gov.uk/government/news/government-ends-miners-pension-injustice
Same with the bus drivers.
My dad eventually got some money back when he was in his 80s. I think it was Prescott who got it back for them. He could have done with it in his sixties and seventies.
Christ almighty……………………
This is (1) rampant greed in pure daylight – so there is no concept then of saving for a rainy day? That’s just for Government.
And (2) this is what happens when those pension pots are not utilised for the public good – they’re just lying around so it seems waiting for this to happen.
And (3) this is what happens when Government is adhering to austerity and people are looking for money because it is short.
Finally, (4) it just adds to the illusion that all the money that there is in the world is in circulation and that old lie ‘there is no more money’ or the ‘money famine’ lie. Except that there is no famine, only a certain section of society that allocates more money to itself. It is a denial of MMT.
What a way to run a society. If we all believed this, we would all be sadists. But we don’t all believe it, so what it is, is abuse by power of those less powerful.
And is therefore illegitimate and needs to be removed.
Agreed
What is this “surplus”?
It means that the market value of its assets (measured today) exceeds the Present Value of expected future pension payments. There is huge uncertainty.
Now, if the companies wanting to extract this surplus were prepared to act symmetrically – ie. Make a legal commitment to calculate surplus/deficit quarterly and make up any shortfall immediately in cash then I might accept their request…. but they are not.
I am not sure we should think of it as pensioners money (or the company’s) but rather as collateral posted to guarantee that the company can meet its obligations to pensioners…. obligations that exist whatever the performance of the assets in the fund.
Much to agree with
The aim would be to return some funds back to the employer AND have sufficient remaining surplus to pay all the pensioners their promised pensions with a buffer to cover adverse market movements, noting that there would need to be conditions whereby the majority of the risk in the scheme is hedged and the company is strong enough to make good any shortfall should it arise. This is an alternative to paying a premium to an insurance company so that they can pay the pensioners their pensions, a premium which includes insurer profit margins in particular.
Leave the surplus in place then: we all know what happend when we did not
You are spouting failed dogma that does not put pensioners first
As elegantly put as ever Clive!!
Not sure if I’m one of those being labelled an “idiot” and a “troll”. I will presume so.
I was trying to make a relatively balanced comment. The conditions I referred to are key. Clearly there is lots of uncertainty and care needs to be taken. If no money can be taken out until benefits are fully secured because things are too uncertain then there is surely an argument that the company needs to keep putting more money in, just in case, no matter how much is in there. You can never have 100% certainty.
Anyway, I wasn’t disagreeing particularly. Pensioners do come first. But as ever things are nuanced.
Memories of Captain Bob at the Daily Mirror or BHS? Will LINO ever learn?
Just change the law, if a pension fund trustee pays out any surplus to the relevant company or a company director takes pension fund money for the benefit of the company it’s a summary offence with a ten year jail sentence for the pension trustee/company director.
“pensioners have a right to their money, and it no longer belongs to their employers”
That’s a fundamental misunderstanding of the position.
These are defined BENEFIT pensions. The amount of pension to be paid is a defined, fixed amount. That’s how they work.
The pensioners have a right to the pension they haven been promised. If there wasn’t enough in the pension pot to provide this, the employer would be obliged to put in more to make up the deficit. Deficits are the responsibility of the employer, surpluses don’t belong to the pensioners.
So you either don’t understand the difference between defined benefit and defined contribution pensions or maybe you do and are just trying to rile up and fool your readers.
Another idiot who does not understand uncertainty.
What is it about you actuaries? Risk ≠ uncertainty. You want to dsitribute the margin required for uncertainty. I suggest that is a breach of fiduciary duty. Debate over.
and when the company, having creamed off the surplus, paid huge dividends to its shareholders bought its own shares, given its directors bonuses & generous salary increases, mired itself deliberately in debt and then pays the people responsible, generous golden goodbyes, then finally retreats into the corporate safety net of administration – that’s not something the trustees should consider as a future risk when looking at a scheme surplus in the present? It happens often enough to make it more than a theoretical risk, and only rarely do people go to jail for it.
Which is why trustees must exercise their fiduciary duty.
The whole point is that a ‘surplus’ represents additional money above and beyond a prudent assessment of the amount of assets needed to fund the promised pensions.
So it doesn’t belong to the pensioners at all. Now there’s an argument about how much can be returned now and how much should be retained to support adverse scenarios, but there’s no (credible) argument that this money belongs to the pensioners. It simply doesn’t, morally or legally.
With respect – it does belong to the pensioners – it is held in trust for them. But why does that matter to the arrogant wealthy who command companies?
Do you undersatnd anything about this issue?
As a pensions actuary with over 30 years of experience, I think I understand a lot more about this than you do Richard.
The entitlement from pensioners is to their defined pension benefits and nothing more, that’s what the law states and that’s what the pension legislation states. Not sure why you think you know better?
I don’t believe you.
You are completely forgetting the fiduciary duty of care, which requires that uncertainty (not just risk) be taken into account. Do you know the difference? Really?
The money is held in trust for the scheme members, but only to meet the benefit promises made to them under the terms of the scheme’s Trust Deed & Rules as these benefits fall due. Hence the scheme members each have an entitlement to a certain pounds per annum pension in retirement, not simply to a share of the overall assets of the scheme. Olivia’s point is therefore entirely correct.
No it is not – because you completely forget the fiduciary duty of care, which requires that uncertainty (not just risk) be taken into account. Do you know the difference? Really?
It looks like a diversionary tactic. The real nettle that needs grasping is how to make use of the entirety of pension funds to achieve the best outcomes for society, as you’ve been arguing, and the interests of the pension savers must always come first.
And as the pensions are paid and the risk reduces (or the investment risk reduces) then the required surplus reduces and can be paid to those who it belongs to.
Which is the sponsor not the pensioners. So you are still wrong.
But these are open schemes. And you ahow convincingly you really do not understand risk in your answer.
Politely, stop spouting your nonsense here, even if it earns you a great deal in boardrooms
But I repeat, I think it amazingly unlikely that all the actuaries who hate my work spend all their time monitoring my comments to post here.
You are a troll
No these schemes are closed. To new members and to new accruals. So you are wrong again.
Why do you keep doing this? Commenting on things you don’t fully understand, then ignoring the experts who point out your mistakes?
It makes you look ignorant and arrogant at the same time – ,you always seem to think you know better than people who have been doing their jobs professionally for decades, it’s very strange.
What’s really amusing is your certainty
If this issue was certain law would nit need to be changed
It isn’t
So, you are another supposed expert peddling a falsehood
How many more want to make fools of themselves?
The duty of care doesn’t say anything about pensioners owning the surplus. Now you’re just grasping at straws, rather than admit you were wrong.
I am not wrong.
I said why, and it appears none of you understand uncertainty.
I will not be posting further comments from supposed actuaries without full CVs having been sent to me by email first – and with full disclosure of identity being made here.
I was a contributor to a DB scheme which nearly went under – I’m now one of its pensioners. The trustees took a fiduciary care because they could see how a future predictable situation was going to put the scheme’s members at risk in the future, as they looked at the future contributions, the risk attached to those disappearing, and the future liabilities as well as the value and future fate of certain relevant capital assets. They acted, raised contributions on employers and employees, and levied capital charges to be paid by employers who no longer had scheme members in the future. (It was the scheme for BUGB Baptist Ministers, Baptists being a Union of self governing churches, lots of employers who each had one employee and lots with valuable capital assets (church buildings) and declining income, so subject to unique future risks for the actuaries to work out. It was messy (I was an employee at the time) but we were well looked after and I now have a decent pension. They were looking at the risks that future contributions would not meet future liabilities.
I’m not an actuary but I understand that the value of a scheme’s underlying investments go up and down today AND NEXT YEAR, and that today’s surplus may just help deal with the risk caused by next year’s stock market crash – unless the company has creamed it off without reference to tomorrow, so the rest of us can pick up the tab. A familiar story.
But there may be heartless greedy City types who disagree with me in my ignorance. Your day in the dock will come.
Some of the City types managing my pension left us in a mess (still being litigated), but the trustees had better ethical values and saved our retirement from penury.
None of Richard’s critics seem to be answering his point about the duty of fiduciary care – that’s telling for a financial layman like me. If people can’t engage in the detail of the argument then I’m not convinced by their claims. Nor would a court be.
I will post more on this….
Maybe tomorrow. It depends on time availability
My old mate ChatGPT says this:
The question of who legally owns surpluses in UK defined benefit (DB) pension schemes—employers or pension scheme members—is complex, involving both legal and moral considerations.
—
Legal Ownership of Pension Surpluses
Under UK law, DB pension schemes are structured as trusts. Trustees manage the pension fund assets for the benefit of the scheme members, who are the beneficiaries. The scheme’s trust deed and rules govern how any surplus can be used or distributed. Typically, these documents specify whether a surplus can be returned to the employer or must remain within the scheme to enhance member benefits.
Historically, many schemes included provisions allowing surplus funds to revert to the sponsoring employer under certain conditions. However, changes in legislation and a focus on protecting member benefits have made it more challenging for employers to reclaim surpluses. For instance, the Finance Act 1986 introduced a tax charge on surplus refunds to employers, and subsequent regulations have imposed strict conditions on surplus extraction.
Recent government proposals aim to relax some of these restrictions. The Department for Work and Pensions (DWP) has suggested lowering the threshold for surplus extraction from the insurer buyout cost to a “low dependency funding” basis. This change could potentially unlock billions in surplus funds for investment in corporate Britain, provided that certain safeguards are in place to protect member benefits.
—
Moral Considerations
From a moral standpoint, many argue that pension surpluses represent deferred wages and should be used to enhance member benefits rather than boost corporate finances. Critics of surplus extraction point to past abuses, such as the Robert Maxwell scandal, where pension funds were misused, leading to significant losses for pensioners.
The article “Leave pensioner’s money alone!” by Richard Murphy emphasizes this perspective, arguing that pension funds are not corporate assets to be reclaimed at will. Commenters on the article echo this sentiment, highlighting concerns about the potential risks to pensioners if surpluses are diverted away from the schemes.
—
Conclusion
Legally, the ability of employers to reclaim pension surpluses depends on the specific terms of the pension scheme’s trust deed and rules, as well as compliance with relevant legislation and regulatory requirements. Morally, there is a strong argument that surpluses should be used to improve member benefits, reflecting the purpose of the pension fund as a vehicle for providing retirement income to employees.
Any changes to surplus extraction rules should carefully balance the interests of employers and scheme members, ensuring that member benefits are adequately protected while allowing for the productive use of surplus funds where appropriate.
Thanks
Back in the day we (that is HMRC) used to get our knickers in a twist about this, insisting that corporates should have strategies to reduce surpluses to what was deemed to be an acceptable level. Of course this gave the corporates carte blanche to go on a pensions holiday or even take a credit back. I remember questioning this with the specialists but this was fine apparently. Maybe it was fine for tax to use the paid/received basis but I think you make a fair point. I don’t know if the tax authorities still take the same view, probably they don’t bother anyway.
Here’s some more from ChatGPT (including my question) that might help. Incidentally, I like to listen to this when things get complicated. It’s exquisite. https://youtu.be/5v1Tv_NqLuQ
A defined benefit pension scheme presumably means that pensioners know exactly what their pension will be. That implies that any enduring surpluses can’t be used to “top up” pensions, since the pension would no longer be “defined”. And that, in turn, implies that at some point, surpluses really do become unwanted. Is that right, and what happens to the surpluses in these circumstances?
ChatGPT said:
You’ve identified a central tension in the design of Defined Benefit (DB) pension schemes: once the pension is “defined”—i.e., fixed by a formula—there’s only limited scope for increasing benefits, even if the scheme develops a large surplus.
Let’s examine this logically and legally.
1. Defined Benefits Are Promises, Not Ceilings
While the pension benefit is defined—say, 1/60th of final salary per year of service—that’s a minimum guarantee, not necessarily a maximum. Trustees can enhance benefits if the scheme rules allow it and if the surplus is large enough.
Examples:
Uprating pensions in payment beyond statutory inflation.
Enhancing benefits for early retirement.
Improving survivor benefits.
However:
Enhancements must be justified, legal, and equitable.
Often require actuarial advice, consultation with the employer, and possibly regulatory clearance.
So, yes—the defined benefit nature limits automatic uplifts, but it doesn’t prohibit discretionary use of surplus for member benefit.
2. When Surpluses Truly Become “Excess”
If a scheme is very well funded—even on a “buy-out basis” (i.e., what it would cost to transfer liabilities to an insurer)—and trustees and employer do not wish to enhance benefits, the surplus can become economically redundant.
This is when questions arise:
Should it just sit unused?
Should it be returned to the employer?
Could it be reallocated within the pension system or used for social purposes?
⚖️ 3. What Happens to the Surplus Legally?
This depends on the trust deed and scheme rules, plus any overriding legislation. Common possibilities include:
✅ a) Return to Employer
Permitted only if scheme rules explicitly allow it.
Subject to conditions: full funding of benefits, actuarial advice, TPR oversight.
Historically discouraged by tax charges (25%+), but current proposals may relax rules to encourage reinvestment in the UK economy.
✅ b) Used for Member Enhancements
As mentioned above, where legally and actuarially justified.
✅ c) Remain in Scheme as Buffer
Some schemes retain surpluses as a prudent reserve against market volatility or longevity risk.
✅ d) Scheme Wind-Up
If all members have received their full entitlements (or bought out with an insurer), any residual assets must be dealt with according to scheme rules.
May involve returning to employer.
May go to another trust or charitable purpose, if return is not allowed.
4. Moral and Policy Considerations
Even if a surplus becomes “unwanted” from a narrow operational point of view, there’s a broader debate about who should benefit:
Pensioners/members, who effectively financed the scheme?
Employers, who took on funding risk?
The public, if the scheme was tax-privileged or subsidised?
Richard Murphy and others argue that moral ownership rests with members, even if legal ownership may revert to employers under specific conditions.
Summary
Question Answer
Can DB pensions be topped up? Yes, within legal and actuarial limits, if rules allow.
Are DB pensions fixed ceilings? No, they are defined minimums, with some scope for enhancement.
Do surpluses eventually become “excess”? Yes, once all obligations are secure and no enhancements are pursued.
What happens to genuine surplus? Depends on trust deed: retained, returned to employer, used for enhancements, or charity.
Is moral ownership clear-cut? No – it’s contested between employers (who bear funding risk) and members (who depend on the scheme).
Olivia earlier spoke about “defined” & “fixed” as if they were synonymous.
I disagree.
A future pension inflation increase in 10 years time, might be “defined” in relation to CPI or RPI, but who knows what the rate will be or how much cash will be required to meet it? Equally uncertain will be the relationship between interest rates and inflation, currently rates exceed inflation far more than they did 10 years ago.
I find all this confident certainty about surpluses quite strange.
@RobertJ,
It’s a reasonable question, but one that can easily be addressed.
You would find it much less strange if you understood the basis of LDI and the instruments that are available to allow a pension fund to extremely closely match the exposure to interest rates and inflation.
This means that these schemes are all but immune to change in inflation and rates, as any change on the liabilities will be matched by a change in the assets.
Try here for more information:
https://www.investopedia.com/terms/l/ldi.asp
I hope this helps?
Matt
Ah yes, LDI that required a £20 billion BoE bailout. No risk at all then.
Cliff, you pose some questions which are easy to answer:
4. Moral and Policy Considerations
Pensioners/members, who effectively financed the scheme??
Answer: These schemes are financed in whole or majority by employers not employers.
The public, if the scheme was tax-privileged or subsidised?
Answer: any return of surplus is subject to a tax charge, as it always has been.
Schemes are always funded by employees: the impact is always to reduce gross pay, in effect. You are mistaking legal form with economic substance. A common, and rather basic, mistake. Try again.
Thank goodness for the Tallis Scholars.
@Matthew Daly
https://www.taxresearch.org.uk/Blog/2025/05/30/leave-pensioners-money-alone/comment-page-1/#comment-1023461
Thx for the reply.
I’m a financial layman so I don’t fully understand this stuff – but I’m not stupid and it may be relevant that I am also an Equitable Life (pension) victim (before it went into Equitable Life (the money was with Allied Dunbar, who I also had a poor experience with, and a pensioner of a DB (and DC) scheme that nearly folded due to fairly unique circumstances (see above) and has now been converted to an insurance-based plan so I am naturally sceptical about financial experts who give me reassurances. The Equitable Life scheme cost me a lot of retirement income. You will understand the word “guaranteed” has a different meaning to me than to many people. EL was the safest most boring pension company I could find but it still folded and the government refused to meet its full obligations (the Treasury said it couldn’t afford to – obviously worried the BoE might run out of fiat currency). https://www.ft.com/content/df51f216-2af5-11ea-bc77-65e4aa615551
So this ignorant layman isn’t as naive about pension risks as perhaps you are assuming.
I looked up LDI, and found this –
https://www.taxresearch.org.uk/Blog/2025/05/30/leave-pensioners-money-alone/comment-page-1/#comment-1023461
Now I know that the Liz Truss crisis was complicated, and I almost understand Richard’s explanation of it and that the blame for the “crisis” needs to be spread wider than her tax cutting plans, with a major part of the blame going to the Bank of England (for more details, see Richard).
But leaving that on one side, I closed my post above with my statement:
“I find all this confident certainty about surpluses quite strange.”
This is the sort of confidence I had in mind when making that statement – your bland reassurance that:….
“This means that these schemes are all but immune to change in inflation and rates, as any change on the liabilities will be matched by a change in the assets.”
either you’ve got a very short memory or you are pulling my leg?
So pardon me, but I don’t feel at all comforted by your confidence in LDI’s. I stand by my comments above.
Your cynicism is wholly justified.
LDI worked, until it didn’t.
Certainty can’t be bought in the way being suggested by too many here. That is my point.
It can and has been successfully used by many pension schemes.
The issues during the Gilt crisis were to do with leverage, not LDI – LDI doesn’t have to be levered, and now that most schemes are in surplus, there is less leverage in the system. Providing you suitable liquid assets for collateral, then leverage is not an issue either.
Most schemes had appropriate collateral , which is why most most schemes did not have issues during the crisis. Oh dear…
1) Maybe you have not heard this, but gilts vary in price. There is even default risk.
2) Markets know. Wow. Are you really daft enough to believe that?
Your claims are those that were made prior to the 2008 global financial crisis, and all of them were wrong. Read Adair Turner’s report on the issue. You might learn something.
And if you use unleveraged LDI then you certainly can match assets and liabilities as claimed.
It’s just another example of your knowledge being based on newspaper headlines rather than actually being involved in the business.
Wow. Do you really think we are stupid enough to believe you?
Apologies, I pasted the wrong url into my cynicism – this is the LDI article I meant to refer to…
https://www.ft.com/content/f4a728a5-0179-48bd-b292-f48e30f8603c
“LDI: The better mousetrap that almost broke the UK”
The article omits to mention the BoE role in the “crisis”, but it v clearly explains the limitations of LDIs.
Precisely
Incidentally, this already effectively been possible (and done on numerous occasions) where there are employees earning benefits in the scheme, whether that is on a defined benefits basis or on a defined contributions basis where it is part of a section of the same scheme. Using this approach, employers can forego making contributions to the scheme to cover the benefits accruing. Clearly this depends on trustee agreement and, in the latter (defined contribution) case, permission by the rules, but this is basically the same as getting a refund of surplus.