The UK government is to consult on how sponsoring companies can access GBP160 billion in surplus funds amassed in defined benefit (DB) pension schemes.
Following decades of deficits, four out of five of the British so-called ‘gold-plated’ retirement plans are back in the black, driving the government to use the Pension Schemes Act 2026 to relax rules allowing access to billions of pounds of surplus.
Minister for pensions, Torsten Bell, said: “The steady world of DB pensions has seen a huge change take place. For the first time in a generation, DB pension schemes are in a genuinely strong financial position, with the vast majority of schemes now having a surplus. This is something well worth celebrating. Now is the time to give trustees the option of safely translating some of those surpluses into real benefits for members and employers.”
The consultation seeks views on proposed draft regulations which set out the conditions that must be met for trustees of to make a surplus payment to the sponsoring employer.
Matthew Arends, partner and head of UK retirement policy at consultancy Aon, said:“This is the hotly anticipated and important final step in enabling the payment of surplus from an ongoing scheme to sponsors – over 80 percent of which are projected to have a low dependency surplus. Once finalised this has the potential to enable a beneficial injection of capital back into the UK economy, with further tax benefits to the UK Treasury.”
The Pensions Regulator (TPR) has simultaneously released guidance for how trustees should engage with sponsoring employers on the DB surplus, advising that they approach conversations in good faith and work collaboratively, taking “appropriate advice and consider any existing policy and conflicts of interest as a first step”.
Arends said that trustees’ fiduciary duty must be paramount in any surplus discussions “to avoid generating additional risk to the pension system”.
He added: “For many schemes, this will be a complex discussion touching on many areas of scheme strategy which could take a long time to consider and agree between parties.”
While the Department for Work and Pensions consultation is ongoing, TPR is clear in its guidance that trustees must ensure that extracting surplus from the scheme does not comprise the ability to pay benefits in the future.
Essentially TPR does not want to repeat mistakes of the past where sponsoring employers were encouraged to take contribution holidays after stock markets soared in the 1980s and 1990s creating massive surpluses in DB schemes.
These breaks in funding were estimated to account for roughly 30 per cent of subsequent pension shortfalls, causing major issues when market conditions reversed.
Further, the pensions watchdog has warned employers against coercing trustees into releasing excess funds unless it is in the scheme members’ best interests.
TPR stated: “We have also been clear that we do not expect trustees to be placed under undue pressure, such as seeking to replace members of the trustee board solely to secure agreement to a release. Over this whole process, it will be for trustees to decide whether to use the new flexibilities to release surplus”
