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Author: Kate Kerr-Davis
The last eighteen months have seen a significant shift in the DB surplus landscape, with major legislative reforms underway alongside notable case law and regulatory developments. With recent months bringing new consultations and draft regulations, and April 2027 on the horizon, this post rounds up the key developments for trustees and employers to be aware of.
The Pension Schemes Act 2026 introduces a new overriding statutory power for trustees of ongoing DB pension schemes to release surplus to the sponsoring employer, regardless of whether the scheme rules previously permitted this. In addition, the existing statutory requirement that trustees be satisfied it is in members’ interests for surplus to be paid to the employer is removed, though fiduciary duties continue to apply. The Act puts the framework for these changes in place, but the relevant provisions and supporting regulations are all expected to come into force on 6 April 2027. For further detail, please see our article on this topic in our Trustee Agenda (Summer 2026) publication.
The Government consultation on the draft regulations, published on 11 June 2026 (consultation closing 2 September 2026), sets out five conditions for surplus release to employers: (i) a low-dependency funding threshold (which replaces the higher buy-out threshold in place under the existing regime) with actuarial certification covering the next three years; (ii) at least three months' written notice to members; (iii) employer consent; (iv) payment within five working days of the actuarial certificate; and (v) notification to the Pensions Regulator within one week of payment. The Regulator has also published a statement encouraging trustees to consider developing a surplus policy in advance of discussions with employers. For further detail, please see our recent post on this topic.
Authorised member surplus payments. The consultation also confirmed that changes would be made to tax legislation to allow trustees to make lump sum payments to members. Draft Finance Bill 2026-27 legislation published in July 2026 proposes a new category of authorised payment enabling trustees of schemes which are not in wind up to make one-off lump sum surplus payments directly to members. Payments will be subject to the same funding test as employer payments, restricted to members who have reached normal minimum pension age (NMPA), and taxed at the member's marginal income tax rate. Where a member is under NMPA, trustees may still grant an award, but payment must be deferred until the member reaches NMPA. During this period, the payment must be increased, at a minimum, by reference to the final salary method. This deferment and revaluation requirement raises additional complexities, particularly for schemes who wish to trigger wind-up before such members reach NMPA, given there is no flexibility to make these lump sum surplus payments once a scheme is in wind-up.
Feedback on the draft Finance Bill legislation is sought by 7 September 2026. These changes are also proposed to take effect from 6 April 2027.
Last year also brought important surplus developments for schemes in wind-up. Arcadia Group Pension Trust Ltd v Smith concerned the merger of two schemes to allow one of the schemes to benefit from surplus in the other. In this case, the High Court approved a trustee's decision to amend its scheme rules to permit a bulk transfer-in from a related scheme in deficit, effectively applying the better funded scheme's surplus to meet that deficit. The Court found no implied restriction on the scheme’s broadly-drafted amendment power and confirmed that the trustee's proper purpose was not confined to the interests of existing members alone. For further detail, please see our article on this case in our Disputes Agenda (Summer 2025) publication.
In the Littlewoods Pension Scheme surplus determination, the Pensions Regulator enabled surplus to be paid to the employer. The Regulator's Determinations Panel made a modification order under section 69 of the Pensions Act 1995, allowing an estimated post-wind-up residual surplus of approximately £10-12 million to be returned to the principal employer where the scheme rules provided no route to do so and further member augmentations were impractical. The case is a useful illustration of the Regulator's powers in this area. For further detail, please see our article on this case in our Disputes Agenda (Winter 2025) publication.
27 August 2026
