The Pension Schemes Act 2026 (“the Act”) marks a deliberate shift away from that position. Among its most eye catching DB provisions is the introduction of a new statutory power allowing trustees to pass a resolution conferring an express power under their scheme rules to permit the return of surplus to an employer.
This is potentially transformative. But it is not a free pass and trustees who see surplus as “spare cash” do so at their peril.
What the Act actually allows
At its core, the Act introduces a statutory mechanism enabling trustees to amend their scheme rules by resolution, even where no existing power to repay surplus exists. In broad terms, trustees will be able to:
- pass a formal resolution to introduce, or widen, an express power allowing surplus to be paid to the employer;
- remove or relax prohibitions or conditions that previously prevented surplus extraction; and
- later decide whether or not to exercise that power in practice.
This new ability is aimed directly at removing the historic legal blockers that arose from legislation drafted at a time when DB deficits were the norm. It reflects a policy assumption that strong funding positions are no longer exceptional and that trapped capital may be economically inefficient.
Crucially, however, this is a power, not an obligation. Trustees cannot be forced to create a surplus power and the Act does not mandate that any surplus must be paid out.
When will this take effect?
Although the Act received Royal Assent on 29 April 2026, most of the surplus related provisions will not take effect immediately. They are dependent on secondary legislation setting out key conditions, including:
- the funding threshold that must be met before surplus can be paid (with the Government indicating a move towards a “low dependency” basis rather than buy out);
- whether additional safeguards or notification requirements will apply; and
- how these payments will interact with tax legislation.
Current commentary suggests surplus regulations are unlikely to be fully in force before late 2027, with a consultation and Pensions Regulator guidance expected before then.
Why this could be a good thing
From an employer perspective, the benefits are obvious. DB schemes often represent a material balance sheet item and surplus trapped indefinitely inside a scheme can distort corporate decision making. The new power offers:
- greater financial flexibility for sponsoring employers;
- an incentive to maintain strong funding discipline rather than drifting towards the minimum; and
- a mechanism to align pension outcomes more closely with broader corporate finance strategies.
There is also a potential upside for members. In the right circumstances, surplus extraction could be accompanied by member benefit enhancements, contribution holidays or funding commitments that improve long term scheme security.
In that sense, the surplus power introduces optionality. Used carefully, it can form part of a balanced funding and risk management strategy.
…and why it is risky
The fact that surplus extraction is now legally possible does not mean it is always prudent.
First, funding positions can change quickly. A scheme in surplus on today’s actuarial assumptions may not remain so in a different economic or demographic environment. Surplus paid out is surplus that cannot be used to absorb future shocks.
Second, trustee decisions will be made under intense scrutiny. Members, unions, corporate stakeholders and regulators are all likely to examine surplus decisions closely, particularly where employer strength has historically been a concern.
Third, and most importantly, trust law duties have not gone away. Although the Act removes the existing statutory requirement for trustees to be satisfied that a surplus payment is “in members’ interests”, trustees must still act in accordance with their overarching fiduciary duties to scheme beneficiaries.
That means:
- exercising independent judgement;
- taking appropriate advice; and
- ensuring decisions are reasonable, proportionate and properly documented.
A poorly justified surplus decision could still be open to legal challenge.
What trustees are allowed to do in practice
Once regulations are in force, trustees will effectively be making two distinct decisions:
- whether to introduce or broaden a surplus power under the scheme rules; and
- whether, when and how much surplus to release.
Trustees may decide to:
- introduce a power but never exercise it;
- limit surplus payments by imposing additional conditions;
- retain surplus as a long term risk buffer; or
- release surplus in stages rather than as a one off payment.
The Act deliberately preserves trustee discretion. It creates flexibility, not a conveyor belt.
An interesting shift in trustee dynamics
Perhaps the most interesting aspect of the surplus reforms is what they reveal about trustee culture.
Historically, DB trustees have often been cast as gatekeepers whose role was to prevent value leaking out of schemes. The Act subtly reframes that role. Trustees are now expected to make strategic, forward looking decisions that balance scheme security, employer sustainability and member outcomes in a more nuanced way.
This is not a retreat from member protection but it is a recognition that risk does not sit in isolation inside a trust deed.
The new statutory surplus power is one of the most significant DB changes in the Act. It unlocks opportunities that were previously unavailable, but it also raises the stakes for trustee governance.
Surplus will no longer simply be a technical actuarial outcome. It will become a deliberate decision point, carrying financial, legal and reputational consequences.
For trustees, the message is clear: the power to take surplus may be coming but the responsibility for using it wisely remains exactly where it always has.
Giorgia Carpagnano, Pensions Consultant – Hughes Price Walker
