Pension system overhaul to unlock billions of pounds for UK economy, Labour claims

The proposals would provide pension trustees with greater flexibility to distribute excess funds to both employers and scheme members.

This initiative represents the latest phase in the Government’s broader pension reform agenda, building upon the Pension Schemes Act 2026 which secured royal assent in April.

The consultation aims to establish a framework allowing surplus assets to flow back into the economy while maintaining robust safeguards for pension savers.

Defined benefit pension schemes currently find themselves in their most robust financial state on record.

The proportion of schemes operating with a surplus has increased fourfold during the past five years, with most now holding assets that exceed their promised pension obligations.

Mr Bell said: “The steady world of DB pensions has seen a huge change take place. For the first time in a generation, DB pension schemes are in a genuinely strong financial position, with the vast majority of schemes now having a surplus.

“This is something well worth celebrating. Now is the time to give trustees the option of safely translating some of those surpluses into real benefits for members and employers.”

The Government’s proposals incorporate substantial protections for pension scheme members.

Any release of surplus funds would require independent certification confirming that scheme funding remains sufficiently strong following the distribution.

Regulatory oversight will be enhanced under the new framework. Trustees wishing to release surplus funds must notify The Pensions Regulator, providing detailed information about scheme assets, liabilities, and payments made to employers and members.

Both TPR and the Financial Reporting Council will issue additional guidance to support the implementation of these regulations.

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Amendments to tax legislation are also planned, making it simpler for schemes to ensure members can directly benefit from any surplus release.

The consultation period will span 12 weeks, with the Government anticipating the new regulatory regime to come into force from April 2027.

Richard Knox, The Pension Regulator’s executive director for Strategy, Policy and Analysis, said: “Many well-run, well-governed and well-funded defined benefit schemes are also considering how to safely release surplus to enhance member benefits and strengthen sponsoring employers.

“To help, today, we have set out the principles schemes should follow when making decisions on surplus, which we will continue to evolve as the new regulatory framework emerges.”