Sackers comments on Defined Benefit pension scheme surplus payments to members consultation

As part of its Autumn Budget 2025, the Government confirmed that tax legislation would be amended to treat surplus payments from ongoing DB schemes to members (or to a dependant after their death) as authorised. Certain conditions will need to be met, including the triggers for releasing surplus under DWP legislation and that such payments cannot generally be made until the member reaches normal minimum pension age (NMPA), unless there are grounds for earlier payment because of ill-health. The consultation on the draft legislation designed to introduce the new “authorised member surplus payments” (which will form part of the Finance Bill 2026/27) closes on 7 September 2026.

Lucy Dunbar, partner, comments: “The introduction of authorised member surplus payments from next April will represent a major step forward in plans for unlocking DB surplus. Such payments therefore form an integral part of the Government’s overall package of changes designed to enable surplus to be shared more easily with employers and members, subject to appropriate safeguards. But, with the draft legislation imposing age restrictions on sharing surplus with members as one-off lump sums, we are concerned that the proposals could end up as a missed opportunity.”

“Although it will be possible to award surplus lump sums to members below NMPA, actual payment must be postponed until they reach that age (or potentially earlier if the individual is suffering from ill-health). Baking in a promise to pay a future lump sum under a pension scheme is not without its complications, adding to the administrative burden already faced by pension schemes.”

“Whilst it is clearly for the Government to decide what triggers to put in place, we are concerned that the current age constraints could hinder the uptake of authorised member surplus payments in practice. The risk is that schemes considering sharing surplus with members may ultimately find it easier to provide increases to existing benefits for those yet to reach NMPA, as permitted under the current legislative and regulatory framework.”

“We therefore wonder whether a simpler solution might be found, such as allowing a one-off payment to all members regardless of age subject to a fixed monetary cap? After all, such payments will be subject to tax at an individual’s marginal rate, which should help act as a deterrent to any potential abuse. An option along these lines should also help to fulfil one of the Government’s other core policy aims, of releasing surplus via members or employers into the wider UK economy to aid growth.”

Read our consultation response.