IGG Responds to DWP Consultation on DB Pension Surplus Flexibilities

We have submitted our response to the Department for Work and Pensions (DWP) consultation, Surplus Flexibilities for Defined Benefit Pension Schemes: Unlocking Value for Employers and Scheme Members.

The consultation proposes to give well-funded defined benefit (DB) pension schemes greater flexibility over the use of surplus. Our response highlights that this must ensure the security of members’ benefits remains the priority, and be accompanied by safeguards to protect independent trustee decision-making.

Balancing flexibility with member security

We support the objective of giving trustees greater flexibility to consider how surplus can be used. However, we maintain that any release must reflect the circumstances and long-term resilience of the individual scheme, with trustees able to reach independent, properly advised decisions in the interests of members and beneficiaries.

To safeguard member security, we support the proposed low dependency funding test as a reasonable statutory minimum for surplus release, but warn against treating it as an automatic threshold at which surplus should be considered available. Trustees should retain the flexibility to determine whether additional funding should be held to protect members, taking account of factors including the scheme’s solvency and buyout position, covenant strength, investment strategy, appropriate funding buffers, contingent assets and long-term objectives.

This caution is also reflected among corporate sponsors. Our report The Pensions Balancing Act, found that two-thirds (67%) of DB corporate decision-makers favour retaining a buffer above the legal minimum before surplus is used or distributed. Just 16% believe schemes should retain only the minimum required by law.

Protecting trustee independence

We also emphasise that protecting trustee independence will be fundamental, both where decisions differ from a sponsor’s preferred outcome and where members may challenge them. We advise that safeguards should be put in place against trustee replacement, alongside clarity on the member notification process to avoid disproportionate administrative burdens.

Our response calls for:

• Security of members’ benefits to remain the overriding priority, with low dependency providing a statutory minimum rather than an automatic trigger for surplus release.
• A scheme-specific approach to surplus, with regulations and guidance avoiding any presumption about how surplus should be used
• Protection for independent trustee decision-making, including safeguards where trustees could be replaced because they do not support a sponsor’s preferred approach to surplus.
• Independent advice for trustees, with the required advice obtained from advisers appointed by the trustees rather than relying on advice provided by the employer or its advisers.
• A practical and clearly defined process, including greater flexibility around payment timings and phased releases, and clearer expectations for member notification and the handling of representations or objections.

Our perspective – Louise Davey, Trustee Director and Head of Policy and External Affairs at IGG, said:

“The DB landscape has changed significantly. Improved funding means many schemes are no longer focused solely on closing deficits, and surplus is creating new opportunities for trustees and sponsors to consider what their schemes could deliver for members and sponsoring businesses. This brings the potential for competing priorities, and more complex decision-making. The Government is right to recognise this change and explore greater flexibility and guidance over how surplus can be used.

“But surplus should not simply be viewed as a windfall. It is the product of a funding and investment strategy that needs to remain resilient over the long term. It can disappear if conditions change. The security of members’ benefits must remain the starting point. Low dependency provides a sensible minimum threshold, but meeting it shouldn’t automatically mean surplus is available to use. Our own research suggests sponsors recognise that caution too, with two-thirds favouring a buffer above the legal minimum before surplus is used.

“Beyond that minimum, there should be no default way that surplus should be used or which party should benefit. Every scheme is different, and trustees need the freedom to weigh the circumstances of their scheme and reach the right decision. That is why their independence is so important. Regulations and guidance should support independent, scheme-specific judgement, rather than favouring a particular outcome, and we urge the Government to consider safeguards to ensure this.”

We set out our full analysis and recommendations in our consultation submission.

Explore our full response here.

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