DWP publishes consultation on surplus regulations

The Department for Work and Pensions (DWP) has published a consultation on draft regulations underpinning new defined benefit (DB) surplus flexibilities. The consultation closes on 2 September 2026 and the regulations are expected to come into force in April 2027.

This reflects a fundamental shift in the DB landscape, with around four in five schemes now in surplus. The consultation aims to unlock surplus in a controlled way, enabling trustees to share value with employers and (potentially) members while maintaining strong member protections.

The proposals introduce a more flexible regime which still places significant responsibility on trustees’ judgement, governance and risk management. The consultation builds on the Pension Schemes Act 2026, the broader government objective to unlock value for economic growth and scheme members, and potential tax and regulatory changes.

The key points from the consultation are:

• The draft regulations will allow trustees of well-funded DB schemes to pay surplus to sponsors where certain conditions are met.

• The proposed funding threshold is fully funded on a low-dependency basis, which is intended to provide a “robust but flexible” safeguard.

• Trustees must meet this threshold at the point of payment and ensure the scheme is expected to remain above that level for at least three years (“the 3-year forward test”), and this must be supported by actuarial certification.

• The scheme actuary will have a critical gatekeeping role, including certifying the funding level and confirming forward sustainability.

• Trustees will remain the key decision-makers and must exercise their powers in accordance with scheme rules, legal duties and the need to protect members’ benefits.

• The draft regulations introduce a statutory override which means that trustees can amend scheme rules to allow surplus payments even if they are currently restricted.

• There will be process safeguards such as notifying members at least 3 months before payment and notifying the Pensions Regulator (TPR) after any payment has been made with specific details.

• Surplus may also be used to support member benefit enhancements and, subject to separate tax changes, direct member payments. Schemes open to accrual may also see benefits through lower contributions.

• There are no transitional measures, meaning any surplus release before April 2027 will remain subject to the existing regime under the Occupational Pension Schemes (Payments to Employer) Regulations 2006.

Trustees should consider taking the following actions now:

• Define a surplus strategy and an endgame strategy e.g. run-on, insure or extract surplus.

• TPR encourages having a formal surplus policy in place which sets out principles for when surplus may be released and how it will be shared between members and the employer.

• Stress-test the funding position against the low dependency basis and the 3-year forward test.

• Review the employer covenant and objectives to understand the employer’s motivations and the covenant strength after any payment of surplus.

• Consider which members should share in the surplus (i.e. all or a subset) and if so how, making sure there is fairness across all cohorts of members.

• Review governance and the decision-making framework to determine whether trustee processes are robust enough for complex actuarial judgements and any necessary negotiation with the employer.

• Check the scheme rules and legal position to understand any current restrictions and assess the impact of the statutory override.

• Review the investment strategy to determine whether it supports low dependency resilience after any release of surplus.

• Plan communications to members as they must be notified in advance of any surplus sharing.

• Engage with advisers and employers early.

Helen Chivers, Actuarial Team Leader at HPW, says: “The proposed framework gives trustees greater flexibility but also places them firmly at the centre of balancing long-term security with fair and transparent decision-making. Trustees who start planning early with clear strategy, governance and principles will be best placed to take advantage of the changes when they come into force."