The Pensions Regulator’s (TPR) upcoming guidance on defined benefit (DB) surplus release must avoid creating expectations that surplus should be distributed in a particular way, or risk undermining government ambitions to encourage well-funded schemes to run on and invest for growth, the Association of Consulting Actuaries (ACA) has warned.

Responding to the Department for Work and Pensions’ (DWP) consultation on surplus flexibilities for DB schemes, the ACA broadly welcomed the proposed reforms and supported plans to introduce the new regime from April 2027.

However, it stressed that TPR’s guidance would be critical in determining how trustees approach surplus decisions.

The association argued that the guidance should focus on safeguarding members’ existing benefits, while allowing the individual history and circumstances of each scheme, including historic and ongoing employer support, to be taken into account.

It also warned that any case studies used by TPR would need careful consideration to avoid creating implied benchmarks or unfairly raising member expectations.

ACA chair, Chintan Gandhi, stressed that the issue was especially important given that scheme behaviour was already changing ahead of the new rules.

He cited recent ACA research showing that the new surplus flexibilities had already changed behaviours or endgame targets for 46 per cent of schemes with assets of more than £1bn.

“With decisions shifting, getting the guidance wrong could leave trustees and employers with less reason to keep schemes running and invested for growth, reducing the potential to generate further surplus and potentially undermining the government’s wider investment ambitions,” he added.

The ACA also supported using a low-dependency funding basis as the legislative threshold for surplus release, provided TPR guidance ensures that employer covenant strength and member protection are appropriately reflected in trustee decisions.

Alongside its concerns over guidance, the ACA called for a more flexible operational framework around surplus payments.

It said trustees should be able to reduce the amount of a proposed surplus payment if market or funding conditions change without being forced to restart the full member notification process.

Meanwhile, the association argued that schemes should be permitted to use a formula-based approach, allowing trustees to explain how a surplus payment will be calculated rather than always specifying a fixed monetary amount.

Gandhi continued: “Surplus release decisions may need to respond to changing market and funding conditions. The framework should make it straightforward for trustees to take a more cautious approach where circumstances change, rather than requiring them to repeat an otherwise unnecessary process.”

The ACA also urged that phased surplus release be made more practical, suggesting that a single member notification should be able to cover a specified series of payments, with each individual payment still subject to actuarial certification.

It warned that the current drafting could otherwise encourage fewer, larger payments because trustees would need to repeat proposal, notification and certification requirements for each payment.

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