The UK government has published draft regulations that would allow defined benefit (DB) pension schemes to release surplus assets once fully funded on a low-dependency basis, a move welcomed by consultants who say it could encourage more funds to run on rather than pursue immediate insurance buyouts.
The Department for Work and Pensions (DWP) today launched a consultation on the regulations, which set out the conditions schemes must meet before surplus can be released to sponsoring employers or used for members’ benefit.
The proposals follow the Pension Schemes Act 2026, which established a legal framework for greater flexibility around surplus extraction from well-funded DB schemes. The government has previously estimated that DB schemes collectively hold up to £160bn of surplus assets.
Under the draft regulations, surplus payments would be permitted where a pension fund is fully funded on a low-dependency basis and is expected to remain so. Conditions would include actuarial certification of the funding position, employer consent and notification to members before any payment is made.
Industry commentators broadly welcomed the publication of the regulations, although many stressed that trustee confidence and practical implementation would determine whether the reforms achieve their objectives.
Adam Boyes, head of trustee consulting at WTW, said the government was right to allow surplus payments where schemes are fully funded on a low-dependency basis and expected to remain so.
“The new funding regime does not require further contributions once funding reaches this level, so allowing refunds from schemes with a surplus on this basis is symmetrical,” he said.
Boyes added that rather than imposing a higher regulatory hurdle, the government and The Pensions Regulator (TPR) were leaving trustees to determine what additional buffer above low dependency may be appropriate for their scheme.
He said WTW’s 2026 endgame survey found that half of DB schemes with assets exceeding £1bn are now expected to run on rather than move rapidly to buyout, allowing surpluses to be used for the benefit of employers and members.
Saye Mkangama, pensions partner at PwC, said the regulations recognised a “fundamental shift” in the DB pensions landscape after years in which the focus had been on deficit repair and member security.
“The challenge now is ensuring those surpluses can be used in practice, not just in principle,” he said, warning that if surplus release becomes too complex or uncertain, trustees and employers may continue to favour insurance buyout, particularly given attractive pricing in the market.
“There is a risk that the tone of accompanying guidance, particularly the emphasis on how surplus should be shared and historical considerations, introduces additional friction into decision-making,” he added.
Workable and flexible framework
Laura McLaren, head of DB scheme actuary at Hymans Robertson, said the consultation represented an important step in translating the principles established by the Pension Schemes Act into a workable framework.
She noted that while the low-dependency threshold had been widely anticipated, the regulations now set out the practical requirements trustees would need to follow before any surplus can be released.
McLaren said trustees would need to notify members at least three months before any payment, meaning the overall process could take around six months.
“If trustees and sponsors see only governance drag, they won’t view it as a viable long-term option,” she said.
Louise Davey, head of policy and external affairs at Independent Governance Group, described the consultation as a welcome step towards giving well-funded DB schemes greater flexibility.
However, she stressed that surplus should not be viewed simply as a funding issue.
“Surplus is not simply a funding issue – it is also a governance issue,” Davey said, adding that trustees would need to decide whether surplus should be retained, released, used to improve member benefits, shared with employers or support wider investment.
LCP highlighted the significance of the shift from a buyout-based funding test to a scheme’s own low-dependency funding basis, arguing that it could bring substantially more surplus into scope for distribution.
Jonathan Griffith, partner and head of endgame innovation at LCP, said the proposals represented “a big step towards making surplus release a real option for DB schemes”.
For trustees’ consideration
Alongside the consultation, TPR published a statement outlining factors trustees should consider when evaluating surplus release, including funding levels, covenant strength, investment strategy and long-term plans for running on.
According to LCP, TPR’s illustrative case studies include examples where members receive 50% and 20% shares of surplus, reflecting the regulator’s expectation that discussions around surplus release may involve benefits for both employers and members.
Jon Forsyth, chair of the Society of Pension Professionals’ DB committee, said the draft regulations appeared to establish “a largely sensible framework”, although further detail would be needed through forthcoming TPR guidance.
He added that trustees were likely to consider safeguards beyond the minimum legal requirements and would need to decide how much of any surplus should be used for members’ benefit.
David Brooks, head of policy at Broadstone, said the reforms recognised the significantly improved funding position of many DB schemes and could create a more balanced relationship between sponsoring employers and pension schemes.
However, he cautioned that member security must remain paramount, noting that surpluses can disappear quickly during periods of market stress.
“The effectiveness of the new regime will therefore hinge on how consistently trustees prioritise member outcomes when considering surplus release,” Brooks said.
The three-month consultation runs as policymakers seek to encourage greater use of pension assets to support investment and economic growth while maintaining member protections. Final regulations are expected to come into force in April 2027.
