Unlocking Pension Scheme Surplus: Navigating The Upcoming Changes

Background

Upcoming changes to the surplus sharing regime mean that employers could receive a payment from the surplus of the pension scheme that they sponsor. For many years, the rules around sharing pension scheme surpluses were very complex. However, the changes made by the Pension Schemes Act 2026 are intended to simplify the way pension scheme trustees deal with funding surpluses.

The law

Prior to April 2006, where a scheme was in surplus, the trustees were required to take actions to eliminate that surplus. At the time, the most common method was to return surplus funds to the scheme’s sponsoring employer, provided that certain conditions were met.

From 6 April 2006, pension tax simplification measures had the effect of removing the requirement to reduce a pension scheme surplus. However, if the trustees of a scheme wanted to retain the power to repay surplus to an employer, they were required to pass a resolution before 5 April 2016.