Peers in the House of Lords have raised concerns that, as drafted, the Pension Schemes Bill prioritises employers over pension fund members in plans to extract surplus from well-funded defined benefit (DB) schemes.
The debate focused on Clause 9 of the Bill, which would give trustees of well-funded DB schemes new powers to modify scheme rules to allow payments of surplus funds to employers.
During proceedings, peers questioned both the language and the content of the clause, arguing that the Bill fails to define what constitutes a surplus and contains no requirement that pension scheme members should benefit if employers receive surplus payments.
Brinley Davies, Baron Davies of Brixton, tabled an amendment to replace the term “surplus” with “assets”.
“Surplus suggests that the money is not needed, which is never true in a pension scheme; assets suggest something far more concrete,” he said. He added that it is important to understand that it is “actual assets that disappear from the pension fund”.
Lord Davies also highlighted that the concept of surplus has no fixed actuarial meaning and depends heavily on assumptions about future investment returns, longevity and inflation.
“There is no certain meaning of what constitutes a surplus. It is not a technical term in actuarial speak,” he said, warning that the Bill risks giving a false sense of security around funds intended to pay pensions decades into the future.
Peers also criticised Clause 9 for failing to reflect repeated ministerial assurances that members would share in any released surplus.
Former pensions minister Ros Altmann, Baroness Altmann, said the structure of the Bill itself revealed the problem.
“The title of the chapter, ‘Powers to pay surplus to employer’, illustrates the problem. It only talks about the employer but says nothing about scheme members,” she said.
She warned, however, that members could reasonably assume they would benefit if assets were released, based on ministerial statements, but that Clause 9 contains no such guarantee.
“Scheme members hearing this must assume that, if the employer benefits from a release of assets, they will as well. But there is nothing in the Bill that will make that happen,” she added.
John Thurso, Viscount Thurso, raised concerns that trustees could face pressure from sponsoring employers once surplus extraction is allowed.
“Employers will no doubt apply immense pressure to steer the distribution towards them and not the members,” he said, calling for stronger safeguards to protect trustee independence.
Lord Davies echoed those concerns, arguing that reliance on trustee discretion alone is insufficient. “The balance of power between members and trustees is totally unequal,” he said, noting that members cannot challenge trustees’ discretion through the Pensions Ombudsman because it falls outside the remit.
Responding for the government, Maeve Sherlock, Baroness Sherlock , minister of state for the Department for Work and Pensions, defended Clause 9, saying trustee fiduciary duties and regulatory oversight would ensure member security and that the government would not mandate how surplus should be shared.
Guidance from The Pensions Regulator, she said, would set out how trustees should approach surplus release and how members might benefit, but she rejected calls to place such requirements directly in the Bill.
Despite the criticism, Clause 9 was agreed without amendment.
