Industry experts have welcomed the government's plans to lift restrictions on how pension scheme surpluses are used.

In response to the consultation on options for defined benefit (DB) schemes, the government said it would introduce a statutory resolution power for scheme trustees to modify their scheme rules in order to access the scheme surplus.

The PLSA said it "welcomed" the measures, suggesting that surplus release by schemes could provide an opportunity to improve member benefits, boost defined contribution (DC) pension contributions, and support new types of investment with appropriate saver protections.

Society of Pension Professionals (SPP) DB committee chair, Jon Forsyth, described the changes as "an important development" for DB scheme strategy.

"The SPP has consistently said that it makes sense to make it easier to return surpluses to employers that wish to do this, and so we broadly support the Government’s approach to surplus extraction as set out today," he continued.

"We are also very pleased to see the government’s commitment to maintaining stringent funding safeguards to protect member benefits, and that extraction will remain subject to trustee discretion and actuarial certification," he said.

Isio director, Iain McLellan, also said that the response provided "more detail" on how the government's thinking had evolved and the measures it intended to take forward.

"It is positive to see that they have listened to industry feedback, committing to introducing the ability to override restrictive rules, basing surplus extraction around low-dependency funding targets and looking for a collaborative approach to be taken by trustees and sponsors."

He added that the proposals marked a "significant shift" in DB scheme regulation.

"For two decades, the focus has prioritised securing existing accrued benefits above all else, including future benefit accruals and discretionary increases. The industry is keen to embrace these changes and the opportunity to support growth and greater innovation."

Echoing this, Octopus Energy Generation fund management team co-head, Alex Brierley, claimed the review could mark a "pivotal shift" in how UK pension capital was mobilised to fuel long-term growth and accelerate the path to net zero.

"Giving well-funded DB schemes the flexibility to invest surplus assets more dynamically is a welcome move - especially if that capital is directed into UK infrastructure and clean energy projects that offer stable, long-term returns," he added.

Broadstone chief actuary, David Hamilton, agreed, suggesting that the "long-awaited confirmation" that sponsoring employers could access the surplus capital in their pension schemes was "welcomed" and would open up new investment possibilities and business opportunities.

"Critically, though, we are delighted to see that such surpluses will only be released at the discretion of trustees, and the government have acknowledged that a focus on safeguarding member interests is essential when considering such payments," he said.

LCP partner, Steve Hodder, also praised the government's "ambitious" plans for DB scheme surpluses as they "avoided unnecessary layers of caution."

"Under the government's plans, rules will be relaxed to allow pension scheme trustees to agree with company sponsors that 'surplus' funds can be used in various ways," he continued.

"This could include improving benefits for existing members of the scheme, using surplus funds to boost the pensions of employees of the sponsoring employer and/or allowing funds to be returned to the company to be used to benefit the business."

Association of Consulting Actuaries chair, Stewart Hastie, suggested that by allowing trustees and sponsors to release surplus on an ongoing basis, the government would help create a "level-playing field across all schemes":

"We look forward to reviewing the detailed legislation and regulatory guidance to promote a flexible regime that builds on scheme-specific funding and incentivises schemes to develop a long-term sustainable investment and surplus release plan with appropriate safeguards for members' benefits," he added.

Sackers partner Janet Brown agreed, stating that the announcement would help remove the current rules' "lottery," which prevented some DB schemes from using surpluses.

Meanwhile, Spence & Partners head of corporate advice, Alistair Russell-Smith, said that the government response was also "great news" from a private sector DB perspective, adding that it should be a "catalyst" for opening up a wider range of implementable endgame options for DB trustees and sponsors.

"Enabling surplus release from ongoing schemes removes the existing corporate incentive to buy-out to access surplus, making long-term run-on more feasible.

"And finally, having statutory recognition of superfunds will bring more providers into this market, possibly including the Pension Protection Fund (PPF) at some point, making consolidation and capital-backed solutions viable for a wider range of schemes," he claimed.

Some industry experts also praised the government for stepping back from providing an opt-in 100 per cent PPF underpin for DB schemes.

McLellan said it was "positive" to see that it had listened to industry feedback by dropping the introduction of an underpin, which didn't have wide industry support, while also noting that the launch of a public DB consolidator had been put on the "back burner."

Echoing this, Brown highlighted that, against the backdrop of the twin difficulties of potential high costs and moral hazard concerns, the government had stepped back from providing an underpin for those who pursued surplus extraction.

"It will, however, continue to explore the viability of a public consolidator," she noted.

Looking ahead, Brown highlighted that with the Pension Schemes Bill likely to follow "hot on its heels" in the next few weeks, today marked the beginning of a "very hectic pensions summer season."

Hastie said the legislation and The Pensions Regulator guidance need to clarify how and when surplus release is appropriate for trustees and sponsors.

"We also would like to see the government bring forward the necessary pensions tax reforms to increase flexibility on how surplus is used – for example, making it easier to use DB surplus to fund current employee pensions," he added.

Hodder argued that the role of pension scheme trustees will now be key as the industry settles into new norms of using strong DB schemes to benefit scheme members, sponsoring firms, and the wider UK economy.

However, Hamilton warned that in an uncertain economic environment, he suspected the amounts released by DB surpluses would be "much lower" than the headline-grabbing £160bn of potential funds.

Independent Governance Group (IGG) head of policy and external affairs, Lou Davey, agreed, suggesting that relying on changes to individual scheme rules may not result in as much surplus release as a statutory override may have achieved.

---