Law Debenture has outlined how universities with self-administered defined benefit pension schemes could reduce costs, lower employer contributions and potentially release surplus funds under changes expected from April 2027.
Around 30 universities operate their own self-administered trust schemes, many of which are in surplus. The Pension Schemes Act 2026 is expected to make it easier for eligible schemes to return surplus funds to sponsoring employers.
The new framework will allow trustees to amend scheme rules to permit surplus payments, subject to funding requirements. Schemes will need to be fully funded on a low dependency basis and obtain an actuarial certificate confirming they are likely to remain at that level for three years following a payment.
There are several ways universities could benefit from existing pension surpluses before considering cash payments. These include reducing ongoing employer contributions, lowering deficit recovery payments, using scheme funds to cover administration costs and funding employer defined contribution pension payments where both arrangements operate within the same trust.
Universities may also be able to release guarantees, escrow arrangements and other security provided during previous periods of pension deficits.
For schemes that remain open to new pension accrual, surplus funds could instead be used to meet the cost of future benefits, reducing employer contribution requirements.
However, trustees must consider member benefits and funding security before releasing surplus. Funds allocated to future pension obligations cannot also be used for employer payments, and open schemes may need additional funding buffers to satisfy the three-year requirement.
Law Debenture also identified opportunities to reduce pension scheme operating costs, particularly through reviewing adviser fees, investment management charges, administration expenses and historic benefit errors.
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