New proposals laying out how “billions of pounds” in defined benefit (DB) pension scheme surpluses could be “safely released” have been launched this week, the Department for Work and Pensions (DWP) has announced. DB pension schemes, sometimes called “final salary” or “career average” schemes, are workplace pensions arranged by employers.
Unlike other pension schemes, the amount those people receive is based on their salary and how many years they’ve been in the pension scheme, rather than investment returns or contributions. They provide a regular income for life, usually in monthly payments. These amounts rise with inflation, offering workers greater protection against spiking prices and cost-of-living squeezes. This sets them apart from the far more widely used defined contribution (DC) workplace pensions, which have no legal obligation to reflect inflationary increases and are based on the investment performance of the funds.
Companies in the private sector have largely stopped offering DB pensions due to the risks of being tied to inflation-busting schemes.
However, in the Government’s announcement on Wednesday (June 10), it said funding levels for DB pension schemes are “currently in their strongest ever financial position, with the number of schemes in surplus having quadrupled over the last five years, meaning that for most schemes assets now exceed the value of promised pension benefits”.
Ministers are now pushing for a mechanism to allow workers to benefit from DB pensions’ success by claiming some of the surplus.
The Minister for Pensions, Torsten Bell, has launched a new consultation setting out plans to “give trustees the flexibility to release some surplus funds to benefit employers, scheme members and the wider economy”.
“The proposals include strong protections for scheme members, including the need for independent certification that scheme funding will remain strong after any surplus release,” the announcement adds. “Changes to tax law will also make it easier for schemes to allow scheme members to benefit from a surplus release.
“Following the passing of the Pension Schemes Act, this consultation marks the next stage in a programme of reform that will boost investment and benefit pension savers.”
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 consultation opened on Wednesday, June 10, and will be available for comment until 11.59pm on September 2, 2026. The Government expects the new regime to be in place from April 2027.
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