We are often asked why the split of surplus sharing is 50/50 and the simple answer is that this was part of the arrangements negotiated between the Government of the day and the Trustees in 1994. The power to change this arrangement lies jointly with the Guarantor and the Trustees.
Neither party can change the arrangements without the agreement of the other party. Since 1994, in reflection of the changing financial circumstances of the Scheme, the Trustees have asked the Government to re-consider the terms of the Guarantee, including the surplus sharing arrangements, on a number of occasions. The Government has made it repeatedly clear in its response to the Trustees’ requests that it does not regard the 1994 arrangements as being unfair and that it has no intention of agreeing to changes that are not in its interests.
What do other schemes do with surplus?
Many schemes were in surplus in the late 1980s and 1990s. Some Schemes, like the MPS, used the surplus to improve members’ benefits and/or allow the employer to take a ‘contributions holiday’.Nowadays, as members live longer, interest rates are lower and investment markets are more uncertain, very few schemes have been able to generate a surplus. On the rare occasions that schemes have found themselves in surplus, it is has generally been used to “de-risk”, i.e. the scheme exchanges its higher returning and riskier assets, such as equities, for lower returning and less risky investments such as government bonds.