The Government’s consultation on DB surplus flexibility reflects the improved funding position of many defined benefit schemes and raises questions about how they can use surplus.
As the consultation ends, Broadstone says policymakers will need to address several issues around how the new surplus regime will work.
It says greater clarity is needed on how surplus release should fit with a scheme’s wider funding, investment and endgame strategy. Trustees will need to ensure surplus payments do not conflict with their long-term investment plans.
Guidance from The Pensions Regulator should also address operational issues such as data quality, benefit accuracy and administration. Broadstone says the rules should be practical and proportionate, particularly for smaller schemes and those looking to release surplus regularly as part of a run-on strategy.
It also says there needs to be greater clarity on how members will benefit from surplus releases, including the role of benefit improvements and how trustee decisions should balance member and employer interests.
Broadstone head of policy David Brooks says: “The Government’s objective of making run-on a credible option alongside buyout and consolidation is a positive step.
“However, the success of the reforms will depend on striking the right balance between member protection and practical usability. Greater clarity on member benefit-sharing, proportionality and operational requirements will be essential if schemes are to use these new flexibilities with confidence.
“Ultimately, the regime should be judged not only on whether surplus can be released safely, but whether it genuinely influences trustee and sponsor decision-making across the market.”