A surplus of publications?

There was a double dose of publications yesterday with the Pensions Regulator (TPR) issuing a statement New defined benefit surplus flexibilities and the Government (DWP) publishing its consultation on: Surplus Flexibilities for Defined Benefit Pension Schemes: Unlocking Value for Employers and Scheme Members with draft regulations due in 2027 (though sooner than we thought in April) proposing amendments to the current law on when DB schemes can release surplus.

Commenting on the DWP’s consultation and TPR’s statement on surplus flexibilities, Janet Brown, partner said:

“With most of the existing legislative requirements governing the payment of surplus on an ongoing basis set to be repealed, the consultation and accompanying draft regulations outline the conditions which will need to be met in future.

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 (as a minimum).

Crucially, the actuarial certification must confirm that this is the case not only at the time of any surplus release, but also that it is expected to remain the case over for the following three years (funding being “at least as likely as not” to remain at the required level for that period are words we may all become familiar with). Recognising that some schemes may wish to release surplus more flexibly over a period of years, rather than all at once, the actuary’s assessment of the funding level for these purposes can be undertaken as either part of the triennial valuation or at any other time.”

“Many of the conditions which will need to be met before paying surplus to an employer in future will feel familiar. This includes the pivotal role of the actuary and the need to notify members and TPR about surplus payments.

But the requirements for notifying TPR are being beefed up, with much more detail required in future around the assessment of surplus, as well as details of any improvements to member benefits. The timetable for providing this information is also quite tight, being within one week of any employer payment being made.”

“The consultation and TPR statement come as a package in time for your summer reading. The date on which the DWP regulations look set to come into force has also been brought forward, to 6 April 2027 rather than later that year.

That things appears to be ahead of schedule will no doubt be very much welcomed by the industry, as many schemes are already actively considering their surplus options.

The consultation has another final hidden gem for 6 April 2027 in that it notes that tax legislation will be changed to permit authorised lump sum payments to members who have reached Normal Minimum Pension Age provided the surplus release threshold is met. The industry was strongly in favour of this option to allow use of surplus for members without baking in long-term liabilities.

TPR also issued a new statement to trustees on how to prepare for surplus discussions with a case study of the here and now and a case study of the future regime. The sentence in the TPR statement that “Running on with the prospect of releasing surplus should be a conscious decision” potentially sums up this new Statement from TPR which gives practical guidance on what trustees should consider and how to prepare for any surplus discussions – preparation makes for a good outcome and decision making process being the underlying theme.”