The government has been urged to provide greater flexibility and administrative clarity around its proposed defined benefit (DB) surplus regime, with industry bodies warning that parts of the framework could prove unnecessarily burdensome in practice.

Responding to the Department for Work and Pensions’ (DWP) consultation on Surplus Flexibilities for DB Pension Schemes, the Society of Pension Professionals (SPP) broadly backed the proposed framework, while the Pensions Administration Standards Association (PASA) called for further detail on the treatment and administration of member surplus payments.

The SPP stated that the draft regulations struck an appropriate balance between allowing well-funded DB schemes to release surplus and maintaining protections for members.

It supported the proposed low-dependency funding basis as the minimum funding test and argued that decisions over how much surplus should be released should remain with trustees, taking into account factors such as covenant strength and individual scheme circumstances.

However, the SPP warned that the regulations appeared primarily designed around one-off surplus payments and could become disproportionately burdensome for schemes intending to run on and make regular distributions.

It called on the government to consider a more proportionate framework for recurring surplus payments, reducing repeated governance and member notification requirements where there had been no material change in circumstances.

The industry body also raised concerns over the proposed actuarial certification process, particularly the three-year forward-looking funding test and the requirement that a scheme be “at least as likely” to continue satisfying the funding condition.

It argued that the wording could create uncertainty between trustees, employers and actuaries and potentially lead to unnecessary delays or costs.

Meanwhile, PASA said it did not expect the proposed arrangements for employer surplus payments to create significant administration concerns, but highlighted a number of areas where further clarification would be needed for member surplus payments.

It noted that schemes could be required to administer deferred surplus entitlements for many years before members became eligible to receive them, making clear rules across the full lifecycle of these payments essential.

PASA also raised questions over whether members should be able to defer or decline a surplus payment if receiving it could have tax consequences or affect entitlement to means-tested benefits.

Further guidance was also requested on how deferred surplus awards should feature in member communications and the pensions dashboards ecosystem.

It also called for guidance on record-keeping, given that deferred entitlements could persist through administrator changes, system migrations, consolidation, or endgame transactions.

PASA suggested the government should also consider whether a 'de minimis threshold' could apply to very small awards, to prevent schemes from having to maintain and administer low-value entitlements for long periods at disproportionate cost.

These concerns were echoed by New Capital Consensus (NCC), which warned that the reforms risked undermining the wider pensions endgame strategy unless they were better aligned with the permanent regime for DB superfunds.

---