Release of Surplus From DB Pension Schemes: Proposed New Rules

Proposed New Surplus Release Rules

The Pension Schemes Act 2026 gives trustees new powers to release surplus from ongoing DB schemes. It also relaxes the statutory conditions that must be met before a surplus payment can be made, with the new requirements to be set out in regulations. Under the government’s consultation, the proposed new conditions include:

• Full funding on a low dependency basis;
• Member notification of the proposed surplus payment at least three months before the intended payment date;
• Actuarial certification that the scheme will be fully funded on a low dependency basis following the surplus payment, and is expected to remain so for the next three years;
• The surplus payment being made within five working days of the actuarial certification; and
• TPR notification of the surplus payment within one week of the payment.

The consultation closed on 2 September 2026, and the new surplus release rules are expected to come into effect in April 2027.

Authorised Member Surplus Payments

The UK Government announced in the 2025 Budget that it would give trustees of ongoing DB schemes power to make authorised surplus payments directly to members aged over normal minimum pension age (“NMPA”).

HMRC has now consulted on draft legislation to create this new type of payment. Under the draft provisions, several conditions must be met for a payment to be an authorised member surplus payment. Firstly, the payment must be made to a member who has reached NMPA or meets the ill-health condition or to a dependant of a deceased member. Secondly, the following conditions must have been satisfied at the point the payment was granted:

• The decision to grant the payment was at the discretion of the trustees.
• The payment was to be made from DB assets.
• The scheme was an occupational pension scheme and was not an investment-regulated scheme or treated as one.
• The scheme was not in wind-up.
• The payment would be an authorised employer surplus payment if made to the employer.

Where a payment is granted to a member who is under NMPA, it cannot be paid until the member reaches NMPA (or satisfies the ill-health condition). The payment is subject to revaluation in the period between it being granted and paid.

HMRC can prescribe other conditions. Payments will be taxed as pension income rather than as lump sums and will not count towards a member’s annual allowance or lump sum/lump sum and death benefit allowances.

TPR’s Views

TPR’s statement on the release of DB surpluses is intended to support discussions between trustees and employers on surplus release options and sets out TPR’s early views on the principles that trustees should consider when releasing surplus. It also includes two case studies on how release works under the current legislation and how it may look under the new regime.

Key points in the statement include:

• If trustees do not already have a policy on surplus release, they should consider putting one in place;
• Trustees should engage with the employer as soon as possible to understand their motivations for wanting surplus to be released;
• Trustees should negotiate the level of surplus release and consider the balance between members and the employer in sharing the surplus; and
• Trustees should consider whether releasing surplus is appropriate based on the scheme’s specific circumstances. They need to consider their fiduciary duties and a range of factors including (but not limited to) the current and likely future strength of the employer covenant, and the employer’s historic support of the scheme.

TPR expects trustees to approach surplus release discussions in good faith and to work collaboratively with the employer. However, trustees should not be placed under undue pressure to agree to a release. It is for the trustees alone to decide whether to release surplus. They should document their discussions and considerations to demonstrate the decision-making process and rationale for the decisions reached.

What Should Employers Be Doing?

Employers who are considering surplus release should review the statement and factor its contents into their preparations and discussions. TPR will consult later this year on more detailed guidance to support the new surplus release rules, which are expected to come into force in April 2027. Employers should keep an eye on the development of this guidance and on the outcome of the UK Government and HMRC consultations.