Industry experts have broadly welcomed the Department for Work and Pensions' (DWP) consultation on defined benefit (DB) surplus release regulations, although several have warned that trustees will face complex decisions around member protections, governance and long-term funding security.

The consultation, published yesterday, sets out the framework for implementing the DB surplus flexibilities introduced through the Pension Schemes Act 2026, which would allow trustees of well-funded DB schemes to release surplus funds to sponsoring employers where certain conditions are met.

Commenting on the proposals, Arc Pensions Law partner, Sonya Fraser, said the regulations "largely deliver what the industry was expecting".

"The regulations establish a structured framework under which trustees can consider surplus release while remaining subject to funding safeguards, actuarial certification and their existing fiduciary duties," she noted.

However, Fraser suggested the key question would be how trustees exercise the new powers in practice.

"The Pension Regulator's (TPR) statement makes clear that member outcomes remain central to the discussion, and trustees will need to balance employer objectives, member expectations and long-term funding security when deciding whether any surplus should be released," she added.

Echoing this, Sackers partner, Janet Brown, said the proposals were largely in line with industry expectations, highlighting the move from a buyout funding threshold to a low-dependency funding basis.

"As expected, and in line with funding requirements, this includes a proposal to shift the threshold at which trustees may share surplus with sponsoring employers from the current buy-out level down to the low dependency funding basis," she explained.

Brown noted that actuarial certification would need to confirm not only that the funding threshold is met at the point of release, but that it is expected to remain so for the following three years.

Meanwhile, XPS partner and head of DB run-on, Tom Froggett, described the consultation, draft regulations and accompanying guidance as "important milestones" towards implementing the reforms by April 2027.

"We welcome the principle of allowing well-funded DB schemes to release surplus for the benefit of members and employers, provided that appropriate guardrails are in place," he said.

Froggett stressed that recent guidance from TPR would be critical in helping trustees navigate surplus release decisions.

"It is one thing for the new regulations to create the legal means for releasing surplus, but quite another thing for trustees to be comfortable in agreeing to this, and rightly so," he added.

Several commentators also highlighted the growing focus on member benefits.

Hymans Robertson head of DB scheme actuary, Laura McLaren, said TPR's accompanying statement gave "a strong steer" that both employers and members may reasonably expect to benefit from any surplus release.

"What will draw most attention are the comments on how members should benefit, supported by illustrative case studies," she claimed.

"The case studies underscore this, offering an example where 20 per cent of a surplus release is used to provide benefit increases and 80 per cent goes to the employer - and, perhaps more strikingly, a scenario where the split moves to 50/50 when the statutory override is used, and a lower release threshold is agreed."

Aon partner and head of UK retirement policy, Matthew Arends, described the consultation as the "hotly anticipated and important final step" in enabling surplus payments from ongoing schemes to be paid to sponsoring employers.

"Ultimately, the fact that surplus distribution requires trustee consent is the most important risk control in place," he warned.

Arends added that the reforms could be of significant interest to the UK's private-sector DB scheme members, given the potential for direct surplus distributions to both members and employers.

However, concerns were also raised over the risks of weakening scheme funding positions.

Association of British Insurers (ABI) head of long-term savings policy, Rob Yuille, argued that ensuring members receive the pensions they have been promised must remain the top priority.

"Research from the Pensions Policy Institute shows that taking money out increases the risk of schemes falling back into deficit, which could ultimately put people's full pensions at risk," he said.

"So it's really important that the rules more clearly spell out how well funded a scheme needs to be before any surplus can be touched."

LCP partner and head of endgame innovation, Jonathan Griffith, also welcomed the proposals, describing them as "a big step towards making surplus release a real option for DB schemes".

"But this will not be a rubber-stamping exercise," he cautioned.

"Trustees and sponsors will still need to be comfortable that any release is appropriate, think carefully about the safeguards they want in place, and decide how and when any surplus should be used in practice."

Similarly, Society of Pension Professionals (SPP) DB Committee chair, Jon Forsyth, said the draft regulations appeared to provide "a largely sensible framework" but warned that "the devil will be in the detail".

He suggested trustees were likely to consider safeguards beyond those required by law and would need to decide how much of any surplus should ultimately be used for the benefit of members.

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