DWP's 'Defined benefit pension scheme surplus payments to members' consultation

Commenting on the closure of the DWP’s consultation on surplus flexibilities for DB pension schemes, Laura McLaren, Head of DB Actuarial Consulting, Hymans Robertson, says:

"Greater flexibility to release surplus from well-funded DB schemes is welcome. However, the framework must be practical if it is going to be used. The risk is that a well-intentioned power becomes too complex and burdensome in practice. The details matter. 

"In particular, the regulations should better support phased surplus release. Where trustees and employers have agreed a sensible programme of payments, member communications should be proportionate and build on existing channels. The process should enable good decisions, not create unnecessary governance hurdles. 

"More fundamentally, the regulations answer how surplus can be released, but not whether it should be released in the first place. For many schemes, that's the more important question. It requires trustee judgement, robust advice and careful consideration of members' interests alongside the sponsor's objectives. Legislation can create the opportunity, but it is unlikely to change behaviour on its own. 

"Using low dependency as the minimum threshold strikes a sensible balance between flexibility and member protection. The next key piece of the puzzle will be guidance from The Pensions Regulator. Trustees need confidence to make scheme-specific decisions on surplus, member security and whether members should share in any release. A successful framework should support the regulations with clear principles-based guidance without being overly prescriptive, recognising that the right surplus strategy will look different from scheme to scheme." 

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