DWP to Review DB Pension Transfer Rules as Surplus Reforms Reshape the Endgame Market

16th Jun 2026
The UK government will review the rules governing defined benefit pension transfers after an asset manager used existing legislation in a way regulators had not anticipated, taking on a scheme's assets and liabilities through a mechanism designed for corporate restructurings. Pensions minister Torsten Bell, who sits across both the Treasury and the Department for Work and Pensions, said on 16 June 2026 that the government intends to review this area of legislation so that regulatory standards and safeguards keep pace with innovation in the pension market. The intervention lands at the same moment ministers are loosening other parts of the DB regime, creating a notable tension between encouraging investment and protecting members. At the centre of the transfer review is the flexible apportionment arrangement, or FAA, a mechanism introduced through amendments to the Employer Debt Regulations from 27 January 2012. It allows a departing employer in a multi-employer DB scheme to have its so-called section 75 debt reassigned to one or more replacement employers under a legally enforceable agreement, without triggering employer insolvency, and requires trustee consent. Bell said an asset manager had used the FAA in December last year in a manner that had not originally been envisaged when the rules were written, prompting the government to examine whether the existing safeguards remain adequate. The Pensions Regulator already requires trustees to take professional advice before agreeing to mechanisms that modify section 75 debt, partly because such arrangements can affect a scheme's eligibility for the Pension Protection Fund. Running alongside the transfer review is a separate and more advanced piece of reform. The government has published a consultation on draft regulations setting new conditions for paying DB scheme surpluses to employers, following changes made in the Pension Schemes Act 2026 to make surplus release easier. That consultation closes on 2 September 2026, with the regulations intended to come into force in April 2027. The proposed threshold for surplus payment would be full funding on a low dependency basis, a meaningful relaxation from the current buy-out basis. A new forward-looking element would also apply: the scheme actuary must confirm not only that the scheme sits above the low dependency threshold at the point of release, but that at any point over the next three years it is "at least as likely as not" to be fully funded on that basis. The mechanics of release are being tightened in exchange for that greater flexibility. Under the proposals, surplus release would involve an initial actuarial assessment of the funding level, the agreement of a provisional amount before members are notified, and at least three months' notice to members. Payment would then have to be made within five working days of the final actuarial certificate, a significant change from the current regime, where the certificate may set a maximum payment and remain valid for up to 15 months. Trustees would be required to notify the Pensions Regulator within one week of any payment, providing more detail than at present. Separately, HMRC will consult on Autumn Budget changes allowing direct payment of surplus to members as authorised payments, with the legislative basis included in the Finance Bill 2026-27 and commencement intended for April 2027. The Pensions Regulator has published "early views" alongside the draft regulations, signalling how trustees should approach release. It expects trustees to consider putting a surplus policy in place, aligned with the scheme's funding and investment strategy, to confirm the board holds the right expertise, to maintain current information on low dependency funding and investment strategy, and to review the quality of scheme data and administration. TPR also flags factors for the release decision itself, including whether to hold a funding buffer above the low dependency level, continual monitoring of the employer covenant, and whether contingent asset support is appropriate — which it suggests may be especially useful where a scheme is funded above low dependency but below full buy-out level. More detailed guidance will follow in a further TPR consultation later this year. Taken together, the two strands point to a regime being rewritten on the move. Corporate sponsors, trustees and the advisers structuring DB endgame transactions face both new freedom to extract value from surpluses and closer scrutiny of novel liability transfers. Chief financial officers overseeing legacy DB obligations should map their schemes against the proposed low dependency threshold now, model the three-year funding test, and engage with both consultations before the rules harden in 2027. The market for DB risk transfer is being reshaped in real time, and the schemes that prepare earliest will have the widest set of options when the final regulations take effect. More From Finance Monthly: Thames Water Rescue in Doubt as UK Government Objects to £10bn Creditor Deal, Raising Nationalisation Risk