Releasing DB Pension Surpluses: The Pensions Regulator’s Views

The Pensions Regulator (TPR) has published a statement on the release of DB pension surpluses. The statement is intended to support discussions between trustees and employers on surplus release options and sets out TPR’s early views on the principles that trustees should consider when releasing surplus. It also includes some examples of how trustees should go about surplus release now, and how this could change when the new rules on surplus release in the Pension Schemes Act 2026 are introduced.

In addition, the government is consulting on the conditions that must be met for surplus to be released under the new rules.

Preparing for Surplus Release Discussions

TPR recommends that trustees take the following steps to prepare for surplus release discussions:

• Check whether they have a surplus policy. If they do not, they should consider putting one in place.
• Ensure that the scheme’s funding and investment strategy aligns with their surplus policy. If it does not, they should consider how it should be amended.
• Identify key advisers early and begin conversations about the advice and support that will be needed.
• If the intention is for the scheme to run on, consider whether the trustee board has sufficient expertise to manage a scheme in run-on.
• Have up-to-date information on the scheme’s funding level on a low dependency basis and its current investment strategy.
• Review the quality of their scheme data and administration, including whether GMP equalisation and/or remediation for past alterations has been completed. Where any material issues or concerns are identified, trustees should consider whether to prioritise further work on this area.
• Engage with the employer as soon as possible to understand their motivations for wanting surplus to be released.
• Negotiate the level of surplus release and consider the balance between members and the employer in sharing the surplus.
• Ensure they are aware of TPR and member notification requirements.

TPR expects trustees to approach surplus release discussions in good faith and to work collaboratively with the employer. However, trustees should not be placed under undue pressure to agree to a release. It is for the trustees alone to decide whether to release surplus. They should document their discussions and considerations to demonstrate the decision-making process and rationale for the decisions reached.

Factors to Consider

Trustees should consider whether releasing surplus is appropriate based on the scheme’s specific circumstances. They need to consider their fiduciary duties and a range of factors including (but not limited to):

• The provisions of the scheme’s trust deed and rules;
• The scheme’s funding level;
• The scheme’s investment strategy;
• The current strength and likely future prospects of the employer covenant;
• The employer’s historic support of the scheme;
• The planned length for running the scheme on;
• The availability of any contingent assets; and
• Whether members may also benefit from the surplus.

Case Studies

The statement includes two case studies illustrating surplus release in practice. The first examines how release works in practice under the current legislation, while the second explores how it may look under the new regime.

Consultation on New Surplus Release Rules

Under the government’s consultation, the proposed new conditions for surplus release from an ongoing scheme include:

• Full funding on the low dependency basis;
• Member notification of the proposed surplus payment at least three months before the intended payment date;
• Actuarial certification that the scheme will be fully funded on the low dependency basis following the surplus payment, and is expected to remain so for the next three years;
• The surplus payment being made within five working days of the actuarial certification; and
• TPR notification of the surplus payment within one week of the payment.

The consultation closes on 2 September 2026, and the new surplus release rules are expected to come into effect in April 2027.

What Should Trustees and Employers Do Now?

Trustees and employers who are considering surplus release should review the statement and factor its contents into their preparations and discussions. TPR is expected to consult later this year on more detailed guidance to support the new surplus release rules. Both trustees and employers should keep an eye on the development of this guidance and on the outcome of the government’s consultation.

How Can Mayer Brown Help?

Mayer Brown can advise trustees and employers on:

• The position on surplus release under the current legislation and their trust deed and rules, and how this could change under the new regime;
• The factors that trustees and employers should consider when deciding whether, and how, to extract surplus;
• Timing and consideration of a policy on surplus release and what such a policy might look like; and
• The necessary formalities to extract surplus.

More broadly, we can also advise trustees and employers on:

• Scheme funding packages, including contribution ratchet mechanisms and alternative funding solutions such as contingent assets, asset-backed contribution arrangements, and escrow arrangements;
• Legal aspects of employer covenant assessment and monitoring processes, including information-sharing protocols; and
• Scheme governance processes.

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