The UK government confirmed it will enable well-funded defined benefit (DB) pension funds to pay surplus directly to scheme members over the normal minimum pension age, where rules and trustees permit it, from April 2027.
While the plans were not announced during yesterday’s Budget speech by the UK’s chancellor of the exchequer, Rachel Reeves, accompanying documents concluded that the government is building on reforms to unlock some of the £160bn (€183bn) of DB pension fund surplus by reducing the tax charge on surplus funds paid directly to members.
The documents claimed that this will make it easier for members to benefit and for trustees and employers to agree on surplus extraction, boosting investment across the economy, enabling well-funded DB pension schemes to pay surplus funds directly to members over the normal minimum pension age.
This is something that the Society of Pension Professionals (SPP) has repeatedly called for, most recently in its November 2025 paper on pre-1997 indexation, which concluded, “[…] we would encourage policymakers to focus on […] legislative change to permit one-off discretionary payments to members instead of requiring longer term commitments”.
Jon Forsyth, chair of the SPP’s DB committee, said: “The SPP is pleased to see that the government has committed to reducing the tax charge on DB surplus funds paid directly to members over the normal minimum pension age.
“As we made clear in our recent paper on the subject, this has various potential benefits for members and sponsors, and we think this additional flexibility will really enhance negotiations on the use of DB surpluses.”
The news was also welcomed by Zoe Alexander, executive director of policy and advocacy at Pensions UK.
She said: “Provided robust safeguards are in place to protect scheme funding and member benefits, we support measures that enable trustees and employers to use surplus to benefit members, but emphasise the need for clear regulatory guidance and member consultation.”
“We support measures that enable trustees and employers to use surplus to benefit members, but emphasise the need for clear regulatory guidance and member consultation”
Zoe Alexander, Pensions UK
Sachin Patel, head of corporate DB at Hymans Robertson, has been more cautious in welcoming the news, pointing out that it is good news as long as no additional tax penalty will be introduced as a result of the change in tax treatment.
“It would provide trustees and employers with greater flexibility to deliver real value to members, without incurring extra tax costs or adding to future liabilities. Such a development would support more efficient decision-making and ensure members can benefit from targeted support when it’s needed most,” he noted.
Patel added that a move to allow pension funds to pay simple additional lump sums to pensioners is expected to make it easier for many large schemes to share DB surpluses with members.
Currently, most DB schemes looking to share surplus with members provide additional increases to pensions. This, Patel explained, is off-putting for some sponsors, as it adds to the level of DB risk they underwrite.
Matthew Arends, partner and head of UK retirement policy at Aon, pointed out that it is unclear why the announced measures are ring-fenced to older members.
He said: “There is the danger that the unintended consequence will actually be to unnecessarily restrict surplus payments to members if trustees want to treat all scheme members equally regardless of age.”
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