On 29 April 2026, the Pension Schemes Act 2026 (the Act) received Royal Assent. The Act contains new powers making it easier for pension scheme trustees to make payments out of surplus funds to scheme employers.
Published: 1 May 2026
Author: Lynette Lewis & Rhiannon Barnsley-Bloomfield
What is the background to the reforms?
Prior to the implementation of the new provisions, to make a payment out of surplus funds to a sponsoring employer in an ongoing pension scheme, the trustees must have passed a resolution known as section 251 resolution before 6 April 2016. This resolution allowed schemes with a pre-existing power to pay surplus funds to employers to preserve it.
However, for schemes that did not pass a resolution in time or have a power to make a payment out of surplus to the employer while the scheme is ongoing, the surplus may be “trapped” until the scheme is wound-up. The funding of defined benefit schemes has improved in recent years hitting a record high, meaning the issue of trapped surplus has become more topical.
The Department for Work and Pensions (DWP) published its Options for Defined Benefit schemes consultation on 23 February 2024 which consulted on methods to make it easier to extract surplus from well-funded schemes. On 29 May 2025, the DWP published its response. As part of this response, the DWP announced that surplus reforms would be taken forward in the Pension Schemes Bill “to make surplus extraction easier for trustees” noting that “Increased surplus flexibilities, with appropriate safeguards, will allow more well-funded DB schemes to release resources back to businesses and scheme members.”
What are the new powers?
Under the new provisions the trustees of a pension scheme may, by resolution, amend the scheme rules to:
- introduce a power for the trustees to make payments to the employer of the scheme out of scheme funds where no power currently exists
- remove or relax any restrictions imposed by the scheme rules on any existing power to make payments to the employer of the scheme out of scheme funds
The new provisions only apply to schemes that are not being wound-up. The requirement for trustees to have passed a section 251 resolution by 6 April 2016 will be repealed.
What are the restrictions?
The use of the new powers must be in accordance with regulations. The Act sets out that regulations must be made:
- prohibiting a payment out of surplus funds unless a relevant actuary is satisfied that certain conditions under the regulations are met in relation to the value of the scheme’s assets and the amount of the scheme’s liabilities
- making provisions about the basis on which the value of the scheme’s assets and liabilities are to be determined
- requiring the relevant actuary to give a certificate before the payment is made
- requiring the members of the scheme to be notified about the payment before it is made
The Government has previously indicated that it is minded to amend the funding threshold at which trustees can share surplus funds with the sponsoring employer of the scheme. This is currently set at funding on a buy-out basis but could be amended to funding on a low dependency basis. The Government is planning to set out further detail in its consultation on the regulations.
Additionally, relaxation of the statutory restrictions does not automatically mean that funds may be paid to a sponsoring employer. Trustees will still be required to ensure that the exercise of any powers under the trust deed and rules are exercised in accordance with their fiduciary obligations to members.
When can the new powers be exercised?
According to the Government’s Roadmap, the surplus regulations and guidance will come into force by the end of 2027.
Separately, at the Autumn Budget 2025, the Government announced that from 6 April 2027, schemes will be able to pay surplus funds directly to scheme members over the normal minimum pension age, where the scheme rules and trustees permit it. The change is set to be introduced in the Finance Bill 2026-27.
Key takeaways
Regulations, which will contain much of the detail on the use of the new powers, are expected by the end of 2027. Guidance is also expected at a similar time. Trustees and employers of well-funded schemes should continue to monitor developments in this area and consider if the new powers could address any trapped surplus in their schemes.