The Association of Consulting Actuaries (ACA) has written to the government outlining what it believes are the essential elements to support plans to 'unlock' defined benefit (DB) pension scheme surpluses.

The letter included a paper titled Unlocking DB pensions surplus, which welcomed the government initiatives to increase flexibility for DB schemes in surplus and set out key points for how this can be incorporated within a risk management approach to safeguard the health of DB schemes and members' benefits.

The paper recognised the importance of unlocking growth and productive finance to government and employers and called for principle-based legislation alongside regulatory guidance.

It said trustees must be "at the heart" of a surplus release and be able to override current scheme rules.

The ACA stressed the importance of consistency with the scheme-specific funding and superfund regimes and said they must be available to all UK DB schemes. However, reforms are expected to be designed primarily to target medium and large schemes.

The letter also said it favoured the gradual release of surplus over time to minimise regret risk and as part of sound risk management.

It suggested a surplus recovery plan as a symmetry to deficit recovery plans, recognising that the main purpose of funding valuations is effectively a "prudent" budgeting exercise.

The ACA argued new flexibilities should include allowing surplus to be more easily used to fund pension contributions for the sponsor's current and future workers and to pay lump sum benefits to DB scheme members, rather than in the form of increases to lifetime pensions.

ACA Chair, Stewart Hastie, said its members were "deeply involved" in advising the pension scheme trustees who will need to make decisions on the use of DB surpluses, and they will need to be satisfied that the new arrangements promised by the government provided adequate security to their members.

"To aid officials in considering the detail of the legislation needed, we propose seven key areas in our paper that any framework of legislation and supporting guidance should satisfy in what can be a very complex area," he continued.

Hastie added it was "essential" that trustees have a formal role in assessing and agreeing to rule changes and determining any refund of surplus to the employer.

"This has the benefit that the trustees can flexibly assess the situation taking account of scheme and sponsor specific circumstances," he said.

"If guidance were to set out the acceptable funding level under specific circumstances - for example, expressed as low dependency plus a margin or a percentage of buyout cover - then trustees will be able to gauge the level of margin appropriate to their scheme's circumstances taking into account additional security provided to the scheme and the status of the employer and level of investment and funding risk, without needing legislation to specify every eventuality."

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