DB surplus flexibilities: what should sponsoring employers do now?

The Pension Schemes Act 2026 marks an important step towards a more flexible regime for releasing surplus from defined benefit (DB) schemes.  The Government’s recent consultation begins to set out how these new flexibilities could operate in practice, with the stated aim of “unlocking value” for both employers and scheme members.  The new regime is expected to come into force from April 2027.

Alongside this, the Pensions Regulator (TPR) has published early views here on how trustees and employers should approach surplus release discussions ahead of the new regime taking effect.

Our commentary on the proposed framework is here.

So, what do these developments mean for sponsoring employers?

1. Engage early to shape the surplus policy

   TPR is encouraging trustees to develop a formal surplus policy setting out how surplus will be managed and potentially shared and to engage with the employer to understand employer motivations and reasons for surplus release.

   In practice, this is likely to become a key governance document covering funding buffers, risk appetite, triggers for releasing surplus, and principles for sharing value between employer and members.  Early engagement will be critical if employers want to influence these parameters – for example, to ensure historic contributions are properly recognised.

2. Build a clear evidential and strategic case

Surplus release will require a robust, well-documented decision-making process, and may attract close regulatory scrutiny – particularly in the early years of the regime. 

From an employer perspective, this underlines the importance of developing a clear and credible rationale for why surplus is being sought (e.g. reinvestment, balance sheet management, wider workforce benefits).  Employers should also ensure trustees understand their objectives and are prepared for their reasons to be tested.  A well-articulated business case is likely to carry weight in trustee deliberations. TPR has reiterated that its existing moral hazard powers (and criminal sanctions) have the potential to apply where a surplus payment could result in material detriment to a scheme (although these are subject to high thresholds and should not be a concern for properly governed, legitimate surplus release processes). 

3. Expect trustees to take an independent, evidence-led approach

   Trustees will remain the ultimate decision-makers and must act in accordance with their fiduciary duties.  TPR has been explicit that decisions should be free from undue employer influence. In practice, this means a careful, evidence-led process, full documentation of key decisions, and a balanced assessment of all relevant factors, including member interests.  Employers should plan for a process that is thorough rather than transactional.

4. Member outcomes will be central

   Both the consultation and TPR’s guidance place strong emphasis on protecting member benefits.  TPR also expects trustees to consider whether members should share in any surplus distribution. 

   As a result, proposals focussed solely on employer receipt of surplus may be more challenging to progress and trustees are likely to expect some form of member benefit in many cases.  Employers may therefore wish to consider what a reasonable member-sharing outcome could look like in their scheme context, if appropriate.

5. Be ready to evidence covenant strength

   TPR expects trustees to take a holistic view when assessing surplus release, taking into account both the strength of the employer covenant and the employer’s future business prospects.  Employers should be prepared to support any proposal with clear, forward-looking evidence demonstrating that the scheme’s long-term security will not be compromised.

6. Consider surplus as part of wider strategy

   Surplus decisions cannot be taken in isolation.  TPR expects alignment with the scheme’s broader funding and endgame strategy, including potential run-on. 

   For employers, this may raise broader strategic questions, including whether to target surplus generation at all, whether run-on is appropriate, and how surplus fits within wider corporate and pensions objectives.  In some cases, the complexity and uncertainty of surplus sharing may influence whether generating surplus is seen as desirable.

7. The detail is still evolving

   The proposals remain at consultation stage (closing 2 September 2026), and further TPR guidance is expected ahead of implementation.  However, the direction of travel is clear in that the focus is shifting from whether surplus can be accessed to how it may be used in a sustainable and well-governed way.

For sponsoring employers, we recommend that now is the time to engage.  Early engagement with trustees, a clear strategic position, and a robust evidential base will be critical in shaping how surplus flexibilities operate in practice for individual schemes.

If you would like to discuss any aspect of this article, please contact Becca Lim, Associate, or Chris Brown, Partner or your usual Burges Salmon contact.

This article was written by Becca Lim, Chris Brown and Fahmida Rahman