The Government's DB surplus flexibility consultation reflects the improved funding position many DB schemes now enjoy, raising important questions about how surplus can be used more effectively.
As policymakers now consider how the new surplus regime should operate as the consultation comes to an end, it will need to address a number of pitfalls, says Broadstone.
Greater clarity is needed on how surplus release should interact with a scheme's wider strategy. Decisions regarding surplus extraction should not be considered in isolation but alongside funding, investment and endgame objectives. While funding sufficiency is clearly important, trustees will also need confidence that surplus payments remain consistent with their long-term investment strategy and journey plan. Clearer guidance in this area would support more consistent and practical decision-making.
The supporting TPR guidance should place greater emphasis on operational readiness, including data quality, benefit accuracy and administration preparedness. Equally important is ensuring the regime remains proportionate and practical, particularly for smaller schemes and those seeking to release surplus on a recurring basis as part of a run-on strategy.
A key unanswered question remains how members are expected to benefit from surplus release. Greater clarity on the role of benefit improvements and the balance between employer and member interests would support more consistent trustee decision-making and help ensure the regime delivers fair and visible member outcomes.
David Brooks, Head of Policy at Broadstone, said: “The Government's objective of making run-on a credible option alongside buyout and consolidation is a positive step.
"However, the success of the reforms will depend on striking the right balance between member protection and practical usability. Greater clarity on member benefit-sharing, proportionality and operational requirements will be essential if schemes are to use these new flexibilities with confidence.
"Ultimately, the regime should be judged not only on whether surplus can be released safely, but whether it genuinely influences trustee and sponsor decision-making across the market.”
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