The Department for Work and Pensions (DWP) has launched a consultation on draft regulations that would allow trustees of well-funded defined benefit (DB) pension schemes to release surplus funds to sponsoring employers.

The consultation sets out the framework for implementing the DB surplus flexibilities introduced through the Pension Schemes Act 2026 and will run until 2 September 2026.

The DWP said the reforms would give trustees the option to release surplus funds where it is safe to do so, benefiting sponsoring employers, scheme members and the wider economy.

The consultation comes as funding levels for DB pension schemes remain at historically strong levels, with around four in five schemes now in surplus and aggregate surplus estimated at around £160bn.

Speaking at the Pensions Management Institute (PMI) Annual Conference 2026, Pensions Minister, Torsten Bell, said the government was "moving forward at pace" with implementing the Pension Schemes Act and was bringing forward the details of how the surplus release regulations would operate.

Bell argued the consultation would provide trustees with "more flexibility to safely release surplus when that's what they wish to do so", while also setting out how employers could benefit alongside planned tax changes.

In a statement accompanying the consultation, Bell said: "The steady world of DB pensions has seen a huge change take place. For the first time in a generation, DB pension schemes are in a genuinely strong financial position - with the vast majority of schemes now having a surplus. This is something well worth celebrating.

"Now is the time to give trustees the option of safely translating some of those surpluses into real benefits for members and employers."

The draft regulations propose replacing the current buyout funding threshold for surplus extraction with a requirement that schemes must be fully funded on a low-dependency basis before any surplus can be released.

Trustees would also need to satisfy a new forward-looking funding test, requiring schemes to be expected to remain at or above full funding on a low-dependency basis for three years following any release of surplus.

The DWP said the proposed threshold would provide a "robust and prudent" safeguard while offering greater flexibility than the current regime.

Under the proposed framework, trustees would be required to obtain an actuarial assessment confirming the scheme's funding position, agree a provisional surplus payment with the employer, notify members at least three months before any payment is made, and obtain final actuarial certification before any payment is made.

Any payment would then need to be made within five working days of certification.

The consultation also confirms that trustees will be expected to consider how members could benefit from the release of surplus, alongside separate HMRC proposals that would allow direct surplus payments to members to be treated as authorised payments for tax purposes.

Addressing delegates at the PMI conference, Bell highlighted the dramatic improvement in DB funding levels, noting that the majority of schemes are now individually in surplus and that the aggregate DB system is also in surplus on a buyout basis.

He noted that the shift had delivered significant benefits for sponsoring employers through falling deficit contributions and had created a wider range of options for trustees considering their endgame strategy.

The proposals would also strengthen regulatory oversight, with trustees required to notify The Pensions Regulator (TPR) of any surplus release, including details of scheme assets, liabilities, payments to employers and any benefits provided to members.

Commenting on the consultation, TPR executive director of strategy, policy and analysis, Richard Knox, said: "Many well-run, well-governed and well-funded defined benefit schemes are also considering how to safely release surplus to enhance member benefits and strengthen sponsoring employers.

"To help, today, we have set out the principles schemes should follow when making decisions on surplus, which we will continue to evolve as the new regulatory framework emerges."

Bell told delegates at the PMI conference that the government expects the consultation to provide the clarity trustees and employers need ahead of implementation in April 2027.

The DWP added that the reforms form part of the government's wider programme of pension reforms aimed at boosting investment, supporting economic growth and improving outcomes for pension savers.

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