29 May 2025
The Government today published its highly anticipated response to last year’s DB options consultation. Subject to certain safeguards, the key headline is that it is pressing ahead with plans to give trustees power to pass a resolution amending their scheme rules to allow surplus extraction at their discretion, as trustees “remain best placed to make decisions in the context of their individual scheme circumstances and their duties to scheme beneficiaries”.
With the upcoming Pension Schemes Bill possibly adding to the proposals, and even more meat likely to be put on the Bill’s bones in subsequent detailed regulations, Janet Brown, Sackers partner, comments:
“With 54% of respondents to a recent Sackers survey saying that they would like to see the Government give trustees flexibility to decide on surplus payments to employers (and on what terms), today’s announcement will be welcome. Crucially, this will help remove the current rules lottery, with some DB schemes facing barriers in using surplus.”
“Unsurprisingly, there will be safeguards, including clarifications to existing legislation to confirm that trustees must act in accordance with their overarching duties to scheme beneficiaries. Before sharing surplus with sponsoring employers, the scheme will also need to be fully funded on the low dependency funding basis, which represents a downwards shift from the current buy-out basis. As such, this will bring into play the role of covenant and its interplay with low dependency as part of any deal between trustees and employers on surplus.”
“Against the backdrop of the twin difficulties of potential high costs and moral hazard concerns, the Government has stepped back from providing a 100% PPF underpin for those who go down the surplus extraction route. It will, however, continue to explore the viability of a public consolidator.”
“Sometimes waiting for pensions developments can feel like waiting for public transport, and today three Government buses (with Torsten Bell MP very definitely ringing the bus stop bell to get the consultations out before the summer) have certainly arrived at once, with the DB options response published alongside two other major papers, the Government’s response to Unlocking the UK Pensions Market for Growth and the Pensions Investment Review Final Report. With the Pension Schemes Bill likely to follow hot on their heels in the next few weeks, today just marks the beginning of a very hectic pensions summer season.”
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