The Pension Review Group (PRG) has reported several times on government plans to make it easier for well-funded Defined Benefit (DB) pension schemes to use their surpluses.
While the Pension Schemes Act 2026 has received Royal Assent, the surplus release regulations are not expected to come into force before April 2027. That said, a significant change in the Act gives trustees of well-funded schemes new powers to release surplus money, where appropriate, to sponsoring employers and/or scheme members. The end-2025 actuarial valuation, which will be completed by March 31, 2027, will provide some insight into the potential for surplus release. However, the new Act does not give automatic entitlement to either sponsor or members, but following the valuation we hope the Trustee will be in a position to give members guidance as to how such funds will be handled.
It should also be noted that some industry bodies want more safeguards before surplus capital can be released to ensure fairness and mitigate potential conflicts of interests, so the shape of the final legislation may still be subject to change.
At 30 June 2025 the RPF funding update indicated a £134 million surplus, which is encouraging, but it is important to note that this is not an amount that can simply be paid out. Under the government’s proposed new rules, any surplus distribution must leave a scheme at least fully funded on a “low dependency” basis — effectively assets must be sufficient to fund all promised member benefits without recourse to the sponsor. Plus there is a forward-looking test intended to protect the funding position for the following three years. As we said in June, the surplus is unlikely to be large enough for these changes to affect members in the short term.
As we reported in June, the new Act did not introduce statutory inflation protection for pre-1997 pensions. The current RPF agreement, however, provides discretionary increases of up to 2.5% on the relevant pre-1997 pensions through 2027, and the Trustee has already said that the Cost Of Living Adjustment, or COLA agreement, will be discussed with our sponsor, the LSEG, as part of their ‘engagement’ on the end-2025 valuation.
The positive funding position of the RPF highlights the importance of the PRG and we need to ensure that we are in a position to effectively lobby for members if/when the time is right.