In more detail

Release of funding surplus

The Bill should "fix" several perceived barriers related to the release of ongoing DB surplus. With further background in a Government consultation response released on 29 May 2025, the Government is clearly keen to pursue the dual aims of supporting investment in the UK and protecting (or enhancing) members' benefits. With this in mind, the Government proposes amending the existing framework for surplus extraction by:

• Introducing a statutory resolution power for trustees to modify their scheme rules to pay surplus to the employer, or remove/relax any existing restrictions in a current power - use of this power will be at the discretion of the trustees.
• Repealing Section 251 of the Pensions Act 2004, which previously required trustees to have passed a resolution by 5 April 2016 in order to retain use a refund power under scheme rules.
• Amending the current legislation governing release of surplus from ongoing schemes so that a refund does not have to be "in the interests of members" (meaning that normal trustee decision-making considerations apply).
• Prescribing the actuarial basis threshold to remove surplus (this will be set out in regulations but the consultation response notes that the Government is "minded" for the basis to be the "low-dependency" basis – i.e., lower than the current "buy-out" basis prescribed in legislation).

The Bill confirms that any Section 251 resolutions that were passed before 6 April 2016 will continue to have effect.

In addition, the Regulator will issue guidance to accompany the new regulations to "facilitate trustee comfort with extraction".

However, one change, that had been called for within the industry, to provide a statutory power allowing for direct payments to members was not taken forward in the Bill, although the Government commented in its consultation response that it will continue to consider this. It is also still considering the current tax treatment of surplus payments (having already reduced the relevant rate from 35% to 25%).

Separately, the Regulator issued new guidance for trustees and employers on 3 June 2025 that contained commentary on "running on" schemes and issues to consider in respect of surplus. Several recommendations were made to trustees to consider during the interim period before the surplus flexibilities are introduced (likely in 2027), including the preparation of a feasibility assessment, a policy on surplus extraction and agreeing various matters about how surplus will be shared with employers and members and even agreements on how surplus would be spent.

Confirming the Pensions Ombudsman status in overpayment recoupment disputes

Following the Court of Appeal's decision in the CMG case, it was clear that a Pensions Ombudsman's determination would not be sufficient under Section 91 of the Pensions Act 1995 to resolve a dispute between a member and trustees in relation to overpayment "recoupment" cases (i.e., repayment via deductions from future pension instalments). This has led to practical difficulties of trustees having to go through the further step of having to get a Pensions Ombudsman's determination effectively "rubber stamped" by a County Court. The Government has addressed this and has confirmed in the proposed amended legislation that an Ombudsman's determination in favour of trustees will "count" to resolve such a dispute, thus enabling trustees to proceed with the relevant recoupment exercise.

Establishment of DB superfund statutory regime

Although the DB superfund market is already active, with Clara having carried out several transactions, the regime has not yet been codified in legislation.

The Bill sets out the "skeleton" framework for the authorisation and ongoing supervision of DB superfunds, drawing on the regulatory regime already in operation under the Pensions Regulator. The vast bulk of the detail around the regime will be set out in secondary legislation, with consultation starting in 2026 and the legislation (and the Regulator's accompanying Code of Practice in this area) coming into force in 2028.

PPF levy flexibility

The Government and the PPF have been clear that they may set low or zero PPF levies in the future to "unlock growth" in the UK economy. Changes to the Pensions Act 2004 have therefore been made in the Bill to provide this flexibility.

Key takeaways

We anticipate that surplus extraction proposals will be the most relevant development in the Bill for trustees and employers of DB schemes. Although these flexibilities are at least two years' off, and further changes might be introduced to allow further flexibility, for example, in the form of one-off payment facilitation, it is clear that many employers and trustees are already discussing possible longer-term strategies, which may include running-on the pension scheme and extracting surplus. This is also evidenced by the Regulator's recent blog and guidance in this area. Where barriers exist to such surplus extraction processes, the proposed changes in the Bill will be welcome, but we would expect strategic discussions on this topic to continue even prior to 2027, with relevant support from advisers and the involvement of the Regulator, where needed.

Please speak to your usual contact at Baker McKenzie if you would like to discuss any aspects of the Pension Schemes Bill 2025 further.