There are some “significant practical issues to resolve”, particularly around payments to younger members in the case of defined benefit surplus, according to a response by pensions focused law firm Sacker & Partners.
From 6 April 2027, trustees of ongoing DB schemes will have new powers to release surplus that may have accrued through successive years of outsized returns.
Most of the current regime governing surplus payments on an ongoing basis will be repealed and replaced by the Pension Schemes Act. The consultation on the new regulations closes on 2 September.
While welcoming the new one-off lump sum, in its consultation response Sackers also identified supposedly significant practical issues to resolve, particularly around payments to younger members.
According to Sackers, schemes will need to know what to do with the sum for scheme funding purposes, disclosure requirements, how to process the event of a member’s divorce and, in a worse-case scenario, the scheme winding-up in the intervening period.
Janet Brown, partner at Sackers, says: “Another area of concern is the way in which the ‘authorised member surplus payments’ are being framed. Although subject to separate consultation, where the conditions for making a surplus payment to the employer are met under the draft regulations, the Government expects trustees to consider how members might benefit.
“Promising to pay a lump sum at a future date will inevitably place extra administrative burdens on schemes, who will need to ensure that funds are available as payments fall due. Younger active and deferred members may want jam today and not the promise of a share of the jam tomorrow.”
Consultancy firm XPS has also called for regulatory safeguards to give trustees greater confidence in using the flexibilities within the surplus.
