Industry experts have broadly welcomed the Department for Work and Pensions’ (DWP) consultation on defined benefit (DB) surplus release regulations, although several have warned that trustees will face complex decisions around member protections, governance and long-term funding security.
The consultation, published Wednesday, sets out the framework for implementing the DB surplus flexibilities introduced through the Pension Schemes Act 2026, which would allow trustees of well-funded DB schemes to release surplus funds to sponsoring employers where certain conditions are met.
“Industry experts” are mainly lawyers
“The Pension Regulator’s (TPR) statement makes clear that member outcomes remain central to the discussion, and trustees will need to balance employer objectives, member expectations and long-term funding security when deciding whether any surplus should be released,” she added.
Echoing this, Sackers partner, Janet Brown, said the proposals were largely in line with industry expectations, highlighting the move from a buyout funding threshold to a low-dependency funding basis.
“As expected, and in line with funding requirements, this includes a proposal to shift the threshold at which trustees may share surplus with sponsoring employers from the current buy-out level down to the low dependency funding basis,” she explained.
A final set of regulations won’t be here until the spring of 2027 but David Walmsey sounded rather more enthusiastic that TPR has been in years gone by! David was speaking at the Pension Age Northern Conference
“For much of the past two decades, the conversation on DB has been around deficits, the need to repair funding gaps, and secure member benefits, but today, the landscape looks very different,” he said.
“Many schemes are well funded, and a significant proportion are in surplus. And this is a fundamental shift, and with it comes a new set of opportunities and responsibilities. We are keen to provide support to trustees in early discussions and preparation.”
Walmsey suggested that one of the most important questions arising from this new reality is how surplus should be approached, noting that the Pension Schemes Act creates greater flexibility for DB schemes on the release of surplus for sponsoring employers and members.
“Previously, as you know, DB schemes could only release surplus to the employer if the trustee and scheme rules allowed it, and only if the scheme was funded above buyout,” he continued, noting that more than half of DB schemes are currently in surplus on a buyout basis and more than three-quarters are in surplus on a low-dependency basis.
“We recognise that surplus release can play a really positive role. Where schemes are fully funded and where appropriate safeguards are in place, surplus has the potential to improve member outcomes and at the same time wider economic growth,” he said.
“But just as importantly, our position is grounded in a simple, enduring principle. The interests of members come first. That hasn’t changed, and it will never change.”
This should calm the nerves of members such as Josephine.
My defined benefit pension plan, currently 109% funded, recently cut certain retirement benefits such as tax-free cash entitlements. The stated rationale was longer life expectancy and “economic” factors. I’ll be monitoring v closely any proposals relating to surplus release.
— Josephine Cumbo (@JosephineCumbo) June 11, 2026
Those of my age will share her and Paul Lewis’ concern.
This reform is intended to boost the economy. Pension scheme members should scrutinise any proposal to release surplus funds, even where some of the surplus is to be shared with members. https://t.co/0ykF9tK9wW
— Josephine Cumbo (@JosephineCumbo) June 11, 2026
I am with Paul and Joseph and indeed TPR, the point of having money in a pension fund is to pay pensions. There are arguments that returning money to employers for them to build the business, create jobs and pay both now and a wage in retirement is reasonable. Just sending the money on to shareholders through increased dividends is not so good.
There are authorised payments to help staff have a comparable pension to those who benefit from a DB scheme and that is to have pensions funded by the cashflow from return of surplus to the employer. It might be possible for the scheme to be set up by the employer for pensions or it could be that the employer could transfer the surplus to the pots of a master trust or the pensions offered by a CDC scheme.
Lawyers will no doubt find problems with anything but let’s hope we have a positive attitude to the sharing of DB surpluses and recognise that sponsors, DB pensioners and (C)DC pensioners can all be balanced if the trustees do their job!
