What the Pension Schemes Act 2026’s new DB surplus release framework could mean for advisers whose corporate clients run a legacy DB scheme alongside a live DC arrangement, including the option of topping up DC benefits from released surplus, and what’s worth raising with those clients now.
In reading this article you will understand:
- What the Pension Schemes Act 2026 actually creates by way of a DB surplus release framework, and what is still only in draft ahead of the 2027 regulations.
- The funding threshold and safeguards trustees will need to satisfy before releasing surplus, and why the shift to a low dependency gateway matters.
- How released DB surplus could realistically reach a live DC scheme, illustrated by the HSBC High Court case, and where that route is and isn’t currently available.
The Pension Schemes Act 2026, which received Royal Assent on 29 April 2026, creates a new statutory framework letting DB scheme trustees release surplus to the sponsoring employer where funding allows. A separate tax change, expected from 6 April 2027, is what opens up payments direct to members. Plenty of established employers still run a legacy DB scheme alongside the live DC arrangement their staff are actually accruing in, and for the advisers who look after them this is a live issue rather than a distant one. The Act itself only sets up the power; the conditions governing who qualifies and how much can move are still being worked out through consultation, with a new regime targeted for April 2027. One option is already drawing real interest, though, and it is specific enough to start discussing with hybrid scheme clients now: using released DB surplus to top up the DC scheme a client’s current workforce is saving into.
The Framework, and What Isn’t Settled Yet
It helps to be clear with clients about what the Act actually does. As Brodies’ summary of the reforms puts it, the Act itself establishes only a high-level enabling power: it gives trustees a new statutory ability to amend scheme rules to permit a surplus payment even where the current trust deed contains no such power. As Osborne Clarke notes, trustees cannot be forced to create that power, and the Act does not mandate that any surplus be paid out at all. Whether a payment happens, to whom, and on what schedule remains a trustee decision, taken with actuarial advice. Trustees can pass the resolution creating the power on their own, but the draft regulations require them to agree the payment itself with the employer.
The detail that will determine outcomes, funding thresholds, buffer requirements, member communication and the exact process trustees must follow, sits in secondary legislation still in draft. The DWP’s consultation on the regulations ran from 10 June to 2 September 2026, and tPR has said fuller guidance will follow a further consultation later this year. Commentary consistently points to the new regime coming into force from around April 2027, and an earlier government roadmap had put it at the end of that year. The government has also said it intends to ease the tax treatment of surplus paid directly to members above minimum pension age from around the same date, subject to a separate HMRC consultation. None of this is final.
The Funding Gateway and the Safeguards
The biggest change in the draft regulations is the funding gateway itself. Earlier government thinking floated a full buyout threshold, or 105% of a low dependency basis, as the qualifying bar; the June 2026 draft regulations settled on a much lower test, low dependency funding alone. That means the scheme is assessed as able to pay all promised benefits without further employer support, rather than having to meet the far higher cost of buying out with an insurer. That matters for hybrid sponsors because low dependency is a bar many more schemes already clear: around 80% of DB schemes were estimated to be funded above low dependency by the end of 2025, against a much smaller share above buyout, and government estimates put close to £160 billion in surplus within reach of the new gateway across the DB universe.
Clearing the funding gateway is not the same as being free to release surplus. Trustees will need actuarial certification both that the scheme currently exceeds its low dependency liabilities and that it is at least as likely as not to still do so in three years’ time, and tPR expects trustees to hold a financial buffer above the minimum, sized to the scheme’s circumstances and the strength of the employer covenant, before agreeing to pay anything out. Members must be told at least three months ahead of a target payment date, and tPR must be notified within a week of a payment being made. This is not a rubber stamp.
The DC Top-Up Question
The option that should interest advisers with hybrid clients is using released DB surplus to fund contributions into the DC scheme the same members, or their colleagues, are currently accruing in. This is not hypothetical. In March 2026, the High Court approved an application by the trustees of HSBC’s £19 billion pension scheme, whose DB and DC sections sit within a single trust, to reinstate a lapsed power directing roughly £152 million a year of DB surplus into DC employer contributions for four years. Because the money never left the trust, it wasn’t treated as a payment to the employer, and it didn’t trigger the 25% tax charge that applies to an authorised surplus payment out of a scheme.
That distinction matters. HSBC’s route works because its DB and DC sections share one trust. Most hybrid sponsors run separate DB and DC schemes, and for them the current draft framework builds no bespoke statutory bridge between the two. Surplus would have to leave the DB scheme as an authorised payment to the employer, taxed at 25%, before the employer could choose, entirely at its own discretion, to direct some of it into extra DC contributions. Nothing published so far suggests a preferential route for that second scenario. So treat a DC top-up as properly available to same-trust hybrid schemes, and for everyone else as an employer-discretion possibility rather than a guaranteed mechanism.
What Advisers Should Discuss With Clients Now
You don’t need the final regulations for any of this to start paying off in client conversations. Establish the basics first: does the client’s DB scheme currently sit above low dependency funding, and does its trust deed already contain a surplus payment power, or would trustees need to use the Act’s new override to create one? Where a client sponsors both a DB and a DC arrangement, check whether they sit in one trust or two; that single fact determines which of the two routes above is even on the table. Start the covenant conversation early too. tPR expects trustees to weigh employer strength, and members’ own history with the scheme, when deciding whether and how much to release, so a client whose covenant story isn’t well evidenced starts from behind once the regime opens. Waiting for the April 2027 regulations before raising any of this would waste a year nobody needs to lose.
Things to reflect on for CPD
- Which of your hybrid scheme sponsor clients would clear a low dependency funding test today, and do you know the answer without having to ask?
- Does your client’s DB trust deed already contain a surplus payment power, or would trustees need to rely on the Act’s new override to create one?
- Where a client runs separate DB and DC trusts, how would you frame the discretionary, taxed route to a DC top-up against expectations a scheme sponsor might have picked up from coverage of the HSBC case?
- How well evidenced is the employer covenant story for your DB scheme sponsor clients, given tPR’s stated expectation that covenant strength will factor into surplus decisions?
