Small regulatory changes could safeguard success of DB surplus regime

Small regulatory changes could safeguard success of DB surplus regime

26 Aug 2026

Ahead of the Government's consultation deadline on DB surplus reforms, XPS Group is calling on policymakers to introduce simple safeguards to bolster confidence in the new framework.

XPS has recommended several practical changes to the framework that could give trustees greater confidence to unlock scheme surpluses, while simultaneously protecting member security and building trust in the new regime. These changes include:

• Requiring trustees to consider whether low dependency will remain the appropriate measure for scheme funding.
• Requiring trustees to consider the type and suitability of any protections in place against the risk of future underfunding.
• Explicitly including covenant advice among the categories of appropriate advice set out in the regulations.

XPS believes these measures would provide trustees with a clearer framework for decision-making and help to limit the risk of poor outcomes that could undermine confidence in the new regime.  

Wayne Segers, Head of Pension Solutions, XPS Group, said: “We strongly support the Government's proposed surplus reforms and are already working with employers and trustees who are preparing to make use of them.

“Linking surplus to low dependency is logical but low dependency valuations are new, and market best practice is still emerging. Only time will tell if the market managed to set the bar at the right level.

“The surplus rules need to recognise this uncertainty. We are asking for the regulations to give trustees more structure around their decision-making, helping to safeguard against poor outcomes undermining confidence in the wider surplus regime.”

Arabella Slinger, Head of Covenant, XPS Group, added: “Incorporating covenant and protections into a surplus policy is a natural part of what well-managed schemes are doing. Reflecting this in the regulations will help trustees and employers to unlock the benefits of surplus strategies while protecting the hard-won funding improvements that have been achieved over recent years.”

Tom Froggett, Head of DB Run-On, XPS Group, commented: “As trustees and employers explore the new surplus flexibilities, the priority must be to protect member security while preserving the flexibility to agree scheme-specific solutions. These objectives are entirely compatible. The legislation should provide clear safeguards around funding and covenant without becoming unnecessarily prescriptive. That will allow trustees and sponsors to reach arrangements that reflect their scheme's circumstances and deliver positive outcomes for all parties.”

Overall, XPS believes the proposed reforms present a significant opportunity for sponsors and trustees to make productive use of DB scheme surpluses, provided the framework maintains appropriate protections for members and confidence in long-term scheme funding.