The Department for Work and Pensions (DWP) has published its consultation on the regulations that will govern the release of surplus funds from well-funded defined benefit (DB) pension schemes, setting out the framework for implementing the new surplus flexibilities introduced by the Pension Schemes Act 2026.

Commenting in Professional Pensions and Pensions Age, partner Sonya Fraser said the regulations largely deliver what the industry was expecting – a practical route for well-funded schemes to release surplus without requiring buyout-level funding.

Sonya noted that the regulations establish “a structured framework under which trustees can consider surplus release while remaining subject to funding safeguards, actuarial certification and their existing fiduciary duties”.

She explained that while “the minimum conditions in the regulations are heavy on actuarial input”, “the legal side of the process is rightly left to trustees to handle”. In particular, she welcomed the Pensions Regulator’s accompanying guidance and its emphasis on taking legal advice, noting that “there is a legal angle not just on the use of powers but also on valuing the correct benefit liabilities”.

Sonya noted that “the emphasis of the regulations and TPR statement is on process and governance”. However, she suggested that “the more interesting question is how (and whether) trustees will exercise these new powers in practice”. “TPR’s statement makes clear that member outcomes remain central to the discussion, and trustees will need to balance employer objectives, member expectations and long-term funding security when deciding whether any surplus should be released.”

Sonya also highlighted the significant emphasis placed on member benefit throughout the DWP consultation and TPR’s guidance to date. “Although the legislation does not prescribe any particular split of surplus, it is notable that both DWP and TPR repeatedly emphasise member benefit. Trustees may therefore find it difficult to consider surplus release without also considering whether and how members should share in the upside.”

Among the other notable aspects of the proposals, Sonya welcomed the decision that “younger members will be able to share in any lump sum payouts, although postponed (and revalued) to age 57” in addition to those over NMPA, as had previously been announced.

She also highlighted the introduction of a new three-year forward-looking funding test as “another safeguard for schemes” noting however that “covenant resilience in any forward-looking analysis will also be key”.  Sonya also noted that trustees and employers “may now find themselves paying much closer attention to the assumptions underpinning their low dependency funding level because those assumptions could ultimately influence access to surplus”.

Read Sonya’s comments in Professional Pensions and Pensions Age.