Now that the draft regulations implementing the new surplus flexibilities for defined benefit (DB) pension schemes are here, what does this mean for employers?

Published: 22 June 2026
Authors: Lynette Lewis

What is the background?

The Pension Schemes Act 2026 introduced new flexibilities by giving trustees of pension schemes the power to amend the scheme rules to either (i) introduce a power to make a payment of surplus to the employer or (ii) remove or relax any existing restrictions on the current power to make a payment out of surplus to the employer. The new powers do not apply to schemes that are being wound-up. You can read more about the background in our article.

On 10 June 2026, the Department for Work & Pensions published a public consultation on the draft Occupational Pension Schemes (Payments to Employer) Regulations 2027 (the Regulations). On the same date, The Pensions Regulator (TPR) published a statement to support initial discussions between trustees and employers on surplus release options.

What are the draft regulations?

We have published a detailed article on the key provisions in the draft Regulations which set out the practical steps involved in making a payment out of surplus to the employer. In summary, the trustees need to obtain an actuarial assessment that the scheme meets the funding threshold for surplus release. Specifically, the trustees need to obtain an actuarial certificate confirming that the scheme is expected to remain funded at or above the funding threshold, not just at the point of surplus release, but also over the following three years.

Interestingly, the proposal is that this threshold is set at a low dependency funding basis. This marks a change from the current regulations governing release of surplus, which require a scheme to be fully funded on the stronger buy-out basis.

What does all this mean for employers?

Low dependency is defined in the 2024 Funding and Investment Strategy Regulations and is summarised in TPR’s Funding Code as requiring actuarial assumptions set so that:

• if the scheme was fully funded on a low dependency basis, and
• the scheme’s assets were invested in accordance with the low dependency investment allocation
• then it is expected that no further employer contributions would be required.

Given that assessment on this basis will form part of a scheme’s valuation basis and most actuaries would consider it to be within a limited range, we would hope that measuring this threshold will not cause too many differences of opinion between employers and trustees.

However, TPR’s statement rightly makes it clear that the new surplus flexibilities do not affect trustees’ independence and that trustees must be satisfied “in the proper exercise of their fiduciary duties, that a surplus release is appropriate.” We can envisage scenarios where this will mean employers offering fallback mitigation in return for agreement to release surplus (such as guarantees or an escrow arrangement).

TPR has also made it clear that it does “not expect trustees to be placed under undue pressure” when it comes to surplus release decisions, for example, by employers replacing members of the trustee board with alternative people to seek agreement to release surplus. Trustees will, however, have to take into account any potential conflicts when exercising their discretion.

The statement reiterates that, while TPR expects trustees to approach conversations with the employer collaboratively and in good faith, ultimately the decision to decide whether to use the surplus flexibilities will be one for the trustees. Consequently, the new surplus flexibilities will only be useful for employers where the trustees of their pension scheme are happy (having taken appropriate advice) to exercise their power to amend the scheme rules and agree to make a payment out of surplus to the employer.

Although the Regulations are currently in draft and the new flexibilities are not expected to come into force until April 2027, we suggest it is not too early for employers to begin having conversations with trustees to understand their current views on releasing surplus, where that might be appropriate.

Key takeaways

The draft Regulations will no doubt generate discussions between trustees and employers in well-funded schemes. Although the new flexibilities will be helpful both for schemes with an existing surplus payment power and especially for employers with scheme rules that have previously not allowed the return of surplus while the scheme is ongoing, the process will still be led by the trustees who are subject to the safeguards in the Regulations and their own fiduciary duties.