This reinforces what I have been saying, though I’m not sure that trustees are legally obliged to do anything. The word “must” is maybe a little strong for trustees, the word “claim” a little strong on DC savers!

Here’s Sandra’s article.

The government has spelled out how it expects surplus release to work in draft regulations, saying low dependency funding is sufficient, but a forward-looking test and actuarial certificate are required, while members and the Pensions Regulator must be notified. The consultation published today will close on 2 September. The Pensions Regulator has issued a statement on surplus release, ahead of guidance later this year.

Pensions minister Torsten Bell introduced the consultation on how employers can access the £160bn in pension fund surplus at the Pensions Management Institute’s annual conference on Wednesday, asking the industry to get involved and respond.

“We are moving forward at pace with implementing what was in the Pension Schemes Act. Today that means bringing forward the details of how the regulations will work for surplus release, for trustees to have more flexibility to safely release surplus when that’s what they wish to do,”

he said.

“Our expectation is that that will provide clarity for people to then be able to make changes that kick in from April 27. Of course, trustees can make decisions ahead of that in anticipation of legislative changes, and the finance bill that follows later this year will also bring forward changes in the tax base that sit alongside that,”

Bell added.

Last November, the government announced that it intends to reduce the tax charge on DB surplus that is paid directly to members, after MPs intervened about the taxation of lump sums.*

The Pensions Regulator’s executive director, strategy, policy and analysis, Richard Knox, said:

“Many well run, well governed and well-funded defined benefit schemes are also considering how to safely release surplus to enhance member benefits and strengthen sponsoring employers. To help, today, we have set out the principles schemes should follow when making decisions on surplus which we will continue to evolve as the new regulatory framework emerges.”

The funding basis that will apply for surplus release is, as widely expected, low dependency. The Department for Work and Pensions said it is

“confident that full funding on low dependency is the right threshold for surplus extraction”, rather than buyout level funding as is currently the case.

However, the DWP plans to introduce a forward-looking element for the funding test used for surplus release, to see if taking assets out of the scheme “meaningfully impacts” future funding and provide reassurance to trustees.

Where employers and trustees have had initial discussions about surplus release, trustees are expected to obtain appropriate advice as well as an actuarial assessment of the scheme’s funding level. If they receive confirmation from an actuary that the funding level is sufficient for surplus release, a provisional amount can be agreed with the employer.

Scheme members will then need to be told about the intention to access surplus

“at least 3 months in advance of the intended payment date, before final actuarial certification of the payment amount”.

This could give members time to lobby employers and trustees to ensure they receive some of the surplus.

Once a payment from surplus has been made, trustees must notify TPR of the payment, including the amount released to the employer and any payments or benefit enhancements for scheme members. Unlike in the current regime, the payment must be made shortly after certification, rather than having a 15-month window as is currently the case, to ensure it reflects the current funding level.

The DWP said:

“This approach balances increased flexibility around surplus release with robust but proportionate member protections, enabling trustees and employers to pursue surplus release with confidence where this is appropriate.”

TPR will consult on more detailed surplus guidance later this year but has published a statement outlining its thinking on Wednesday. This recommends that where surplus release discussions are likely, trustees should consider creating a policy if they do not already have one and see if their long-term objective aligns with it. They are also asked to consider if the trustee board has the expertise to run on, as well as the balance between members and the employer in sharing the surplus, among others.

DB superfunds will not initially be permitted to release surplus, with the DWP saying it plans to make separate provision when the authorisation and supervisory framework for superfunds comes into effect.

“From that date, surplus release from superfund schemes will be permitted, subject to different regulatory conditions and a stricter funding test,”

the department said, noting that it will consult on its proposals.

The consultation was welcomed by Helen Forrest Hall, chief strategy officer at the PMI, who said the proposals give trustees a central role in determining when surplus can be used.

“The move to a forward‑looking test, rather than a single point‑in‑time assessment, provides a more practical basis for planning. The continued requirement for member notification maintains transparency, and the work alongside the [Financial Reporting Council] on supporting standards will help ensure consistency across the framework,”

she said.

The draft regulations appear to set out a largely sensible framework but that the devil will be in the detail, with more to come with The Pension Regulator’s guidance, said Jon Forsyth, chair of the Society of Pension Professionals DB Committee.

“In practice, trustees are likely to want to consider safeguards beyond what is in the law, as well as how much of any surplus should be used for the benefit of members,” he said. “Looking ahead, it will be interesting to see how this area develops and influences DB strategy – including how trustees, sponsors and indeed members react to this policy in practice.”

David Brooks, who heads up policy at consultancy Broadstone, said providing greater flexibility around surplus extraction has the potential to create a more balanced relationship between sponsoring employers and pension schemes.

“If employers can see a clearer route to benefitting from future surpluses, it may encourage a greater willingness to support schemes over the long term and maintain investment in them where appropriate,”

he argued.  However, he said long-term member security must remain the overriding consideration:

“Surpluses can disappear more quickly than they are created, particularly during periods of market stress, so it is pleasing that the proposals emphasise the importance of trustees retaining strong protections and clear safeguards before funds can be released.”

The effectiveness of the new regime will hinge on how consistently trustees prioritise member outcomes when considering surplus release and if surplus release will develop equitable approaches between employers and members, he added.