Industry signals confidence in proposed new pension surplus rules as schemes eye new options and opportunities

A recent poll conducted during an LCP and Simmons & Simmons webinar shows strong support for the changing surplus rules due to come into force in 2027. Among respondents who have already assessed the incoming framework, two thirds said the rules strike the right balance between protecting members and giving flexibility. 

However, 33% said they remained unsure - which highlights the importance of the development of the regulation and TPR guidance to provide industry with further clarity. 

The webinar explored the growing opportunities for defined benefit (DB) schemes to make use of surpluses following improved funding positions and regulatory changes. When asked how they would prioritise surplus use, the audience was split. Around 30% said it would be to reduce risks and costs within the DB scheme and a similar number said they would return the surplus to the sponsor.  Only 14% said that the focus would be to improve existing DB scheme benefits. 

The webinar highlighted three takeaways for trustees and sponsors thinking about how to manage and deploy surplus:

• There are opportunities to make better use of surplus that can already be explored by sponsors and pension trustees – before the surplus rule change in 2027. Options include improving member outcomes, reducing risk and costs, supporting ongoing pension provision, or returning funds to the sponsor.
• Schemes should establish key surplus principles and objectives. Engaging all stakeholders early and understanding the specific circumstances of a scheme (including any scheme-specific preconditions for sharing surplus) are crucial for making informed decisions.
• Surplus use needs to be built into wider strategic endgame planning to achieve the best outcomes for all stakeholders.  

Jonathan Griffith, Head of Endgame Innovation at LCP, commented: “A majority of schemes are now in surplus. Understanding the increasing range of options available is crucial for achieving the best outcomes and ensuring long-term security.  

“The message from the industry is clear: the new surplus rules are landing in the sweet spot—protecting member benefits while giving schemes the flexibility to create value. This marks the beginning of a new phase in which trustees and sponsors can intentionally take smarter, more innovative, and more strategic approaches to surplus use." 

Edward Smith, Partner at Simmons & Simmons, added: “DB Scheme surpluses create significant opportunities to realise value for pension scheme members and sponsors alike. Many clients are designing and implementing strategies that protect hard-won benefit security whilst sharing value. The key from a legal perspective is to understand your pension scheme’s rules, the changing regulatory regime and how to best give effect to your chosen strategy.”