UK Government Proposes Unlocking Trapped Pension Scheme Capital

The Department for Work and Pensions published a consultation on June 11, 2026, proposing a new framework to unlock trapped capital from overfunded defined benefit pension schemes. The government intends to stimulate economic growth and employer investment by giving trustees greater flexibility to release surplus funds to both employers and scheme members.

To facilitate this, the proposal suggests replacing the existing buyout-based test with a low-dependency funding assessment and introducing a forward-looking funding test to protect long-term benefit security. The new regime would mandate actuarial evaluations and require that members receive notification at least three months before any payments are made.

Pensions Minister Torsten Bell described the current financial state of defined benefit schemes as the strongest in a generation. However, industry consultants have cautioned that surpluses can evaporate quickly during periods of market stress, emphasizing that long-term member security must remain the priority. The consultation period for these reforms is scheduled to end on September 2, 2026.