Aon’s 2025 Discretionary Pension Increase Survey, which covered over 200 UK DB schemes, shows an evolving approach to how schemes are managing discretionary benefits during a period of lower inflation and with growing attention given to surplus sharing.
The survey found that just 13 percent of schemes granted a discretionary increase in 2024, down from 17 percent in 2023. Looking ahead, 12 percent of schemes say they are planning to or are likely to grant a discretionary pension increase in 2025. A further 9 percent of schemes are now looking to grant some other form of discretionary benefit such as access to IFA support.
Further highlights from the survey include:
• Scheme funding level has a considerable influence on decisions; all schemes that granted a discretionary increase were fully funded on a Technical Provisions basis, while 58 percent of those granting a discretionary increase in 2024 were fully funded on a solvency basis.
• 61 percent of the schemes offering a discretionary increase in 2024 and which had a planned endgame, were intending to run-on rather than insure at the earliest opportunity.
• 83 percent of schemes have not decided how to share any surplus between the sponsor and members.
Nick Coates, associate partner and head of member distributions for Aon, said: “Pension schemes are facing evolving challenges around discretionary increases and in the way they distribute surpluses. The proportion of schemes granting a discretionary pension increase in 2024 was lower than in the previous year and we see a similar picture emerging for 2025. However, in the future we expect to see more schemes considering these increases, driven by better funding positions and the greater flexibility to release surplus, as outlined in the Pension Schemes Bill.
“But endgame plans also matter. We’ve seen that schemes intending to run-on are more likely to grant discretionary increases - which is not a surprise. However, if it significantly delays the timeline for their endgame or if there are concerns over sponsor covenant, those looking to insure might now be less likely to grant a discretionary increase. Furthermore, following on from the Pension Schemes Bill, the Pensions Regulator’s endgame guidance in June 2025 suggests that schemes seeking to run-on should agree a policy of surplus distribution. Our survey suggests much more work is needed in this area, with 83 percent of schemes yet to form a policy for sharing surplus between members and the sponsor.
“As schemes have become better funded there are complex issues for trustees to work through on when and how discretionary benefits are awarded. Simply retaining the surplus and building up more could lead to significant intergenerational unfairness among members. For example, if discretionary benefits are only awarded 10 years down the line, it will only be those still alive who can benefit - so the timing of the surplus release is important.”
Releasing surplus
The survey revealed that the most common method for releasing surplus is to grant a one-off ‘pre-1997’ discretionary pension increase. However, there may be fairer ways to share surplus among members, depending on the circumstances and the scheme rules.
“Our survey shows trustees are starting to consider these issues and are looking for alternative ways to use surplus, such as paying for independent financial advice for members – we expect to see more ideas like these being explored in the years to come. There is also further scope for government to make it easier for schemes to award discretionary benefits. For example, we believe that enabling schemes to grant one-off cash lump sums from surplus as an authorised payment, would be a good alternative to awarding a pension increase. There are ways to navigate through the moral and current tax issues of awarding a discretionary benefit, but many trustees aiming to insure plans rather than run-on might prefer to avoid some of the complex decisions around utilising surplus simply by insuring before a surplus has emerged.
“Schemes may need to justify whether and how they apply discretionary increases or distribute surplus. Either way, it’s increasingly apparent that trustee boards and sponsors must clearly define decision-making responsibilities and engage in strategic planning around surplus use and equitable sharing.”
Aon’s 2025 Discretionary Pension Increase Survey is available by contacting talktous@aon.com.
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