The Government is consulting on regulations designed to make it easier for trustees to pay to pay surplus to employers and members when the scheme is ongoing. The Pensions Regulator (TPR) has also published a statement on the new surplus flexibilities. The changes will take effect from April 2027.
What is changing?
Currently if a scheme’s rules do not allow employers to receive surplus from an ongoing scheme, it can be very difficult to change the rules to allow that. However, from April 2027 trustees will be able to change their rules to permit this.
Even if a scheme’s rules currently allow this, overriding law prevents it unless the scheme is fully funded on a buy-out basis. However, the draft regulations lower the threshold so that the scheme must be fully funded on the statutory “low dependency funding” test.
Crucially, the scheme actuary must not only certify that the scheme will still be in surplus on a low dependency funding basis following the surplus payment to the employer, but that it will be “at least as likely as not” that that will remain the case for three years from the date of the certificate.
Note that the low dependency funding threshold is the legal minimum threshold for payment. It will be open to trustees to set a higher threshold taking into account factors relevant to their scheme and employers.
Will the surplus have to be shared with members?
There is no obligation on trustees to do this. However, their normal legal duties will require them to consider it.
If it is agreed that members should also benefit, trustees will have the option of paying lump sums to members directly (i.e. without having to provide it as an increase to pension) provided they have reached “normal minimum pension age” (age 55 currently, rising to 57 from 6 April 2028). HMRC will be consulting separately on legislation to facilitate this.
Who must be told about any proposed surplus payment?
Trustees will need to give details about a proposed payment to members at least three months in advance, covering the amount, timing and whether members are also benefitting via benefit improvements. Trustees must also give similar details to TPR.
When will the changes take effect?
The Government intends that the changes will take effect in April 2027.
