Question to the Department for Work and Pensions:

To ask the Secretary of State for Work and Pensions, what evidence underpins the assumption in the Pension Schemes Act 2026 impact assessment that members will receive a broadly equal share of benefits arising from surplus extraction; and what mechanisms exist to ensure members receive such benefits where scheme rules do not provide for pre-1997 pension increases.

Discretionary indexation is over and above the statutory requirements. This discretion is usually exercised by the trustees with the agreement of the sponsoring employer. Some schemes have previously paid discretionary increases on a regular basis.

The Pension Schemes Act 2026 has made changes so that more trustees of well-funded schemes have the flexibility to share their scheme surplus with employers, subject to strict funding safeguards for members.

Scheme trustees will be responsible for decisions on surplus release, working with sponsoring employers. Trustees must act in the interests of scheme beneficiaries and are best placed to determine the appropriate use of any surplus for their individual scheme. They will agree how members can benefit, which could include discretionary benefit increases.

The Pensions Regulator already expects that trustees be aware of members who would benefit from any decision to award a discretionary increase and whether the scheme has a history of making such awards. They will issue guidance, developed in consultation with industry, which will outline matters trustees should consider when releasing surplus.

For the purpose of the Impact Assessment for the Pension Schemes Act, it was stylistically assumed that surplus would be equally split between sponsoring employers and members, reflecting the reality that any split is for trustees not government.