The UK’s Pension Schemes Bill has pushed defined benefit (DB) surpluses to the centre of policy debate. With schemes collectively holding around £160bn more than needed to meet promised benefits, ministers argue that well-funded schemes should be able to share some of this value with members and employers. But early evidence suggests that, while the reforms expand what is possible, they may not significantly change what schemes are willing to do. Why is that, and what is the most likely scenario? 

 

Autumn Budget 2025 confirmed the new framework. From April 2027, DB schemes will be allowed to make direct surplus payments to members who have reached normal minimum pension age. The budget states the government will ‘reduce the tax charge on surplus funds paid directly to members’ under the new regime, and the tax on surplus refunds to employers was cut from 35% to 25% in 2024, lowering the overall tax burden on surplus distributions.

 

The new legislation is expected to allow surplus release when full funding is achieved on a low dependency basis – a more relaxed approach than buy-out basis. This is logical if the intention is to allow surplus release in scenarios other than buy-out and wind-up; in other words, if a scheme is running on, then a low dependency basis makes sense as the employer covenant continues and it will be expected to make up any future funding shortfall. 

 

 

There is a credible argument that sponsors “deserve” to share in DB surpluses. Employers funded decades of deficits, continue to bear governance and regulatory burdens, and now face higher tax costs following two 2025 Budgets. With member security protected by statutory funding thresholds and a 25% tax charge still applying to employer refunds, modest surplus access is framed by policymakers as both fair and economically productive.

 

Automatically returning the surplus to the sponsor may be appropriate when the scheme is non-contributory for employees – and when the surplus can reasonably be attributed to the extra contributions by the sponsor, for example as in the recent court case of Thrells v Peter Lomas. 

 

In most other cases in our research, trustees have told us they expect any surplus to be shared with members. The latest reforms make surplus sharing with members legally safer, tax-efficient and operationally clearer. 

 

Trustees remain focused on long-term security, winding-up plans, and insurer buy-out. Many will be reluctant to weaken funding buffers or set precedents for future payments. So while Brightwell finds that 93% of businesses would seek access to surplus if rules allowed, Standard Life reports no clear trustee consensus that surplus release is in members’ interests.

 

A survey of by Sackers further found only around 40% would consider surplus release even under more flexible rules. Concerns include fairness between member groups, retaining endgame resilience and uncertainty over future funding regulations. The Department for Work and Pensions’ own modelling reflects this caution: of the £160bn aggregate surplus, it expects only about 5%—roughly £8–11bn—to be released over ten years.

 

Commentators welcomed the clearer mechanism for sharing surplus and the shift to authorised payments. But Budget costings show how small the expected flows are: member payments are projected at roughly £120–145m a year. Against a £160bn headline surplus, the reform looks politically resonant but with a modest impact.

 

What we know so far is that while the new framework will enable conversations that would not have been possible before, it will not solve the balancing act between sponsor needs, member interests and trustees duties. Until the Pensions Regulator publishes guidance on the changes expected to come into effect from 2027, most schemes are expected to adopt a cautious stance – and we plan further research in early 2026 to provide as much clarity as we can in the meantime.