This article was first published in PensionsAge.

The government’s proposed defined benefit (DB) surplus reforms risk undermining the wider pensions endgame strategy unless they are better aligned with the permanent regime for DB superfunds, New Capital Consensus (NCC) has warned.

Responding to the Department for Work and Pensions’ (DWP) consultation on Surplus Flexibilities for Defined Benefit Pension Schemes, the NCC said it supported the overall direction of reform but was concerned that surplus release was being treated as a standalone measure rather than as part of a wider package of DB endgame options.

The NCC backed the government’s broader efforts to modernise private pensions, including improving value, consolidating small pots, strengthening governance and creating larger pools of pension capital that can be invested productively.

It was particularly supportive of reforms designed to give trustees and sponsors of closed DB schemes more options beyond insurance buyout.

The NCC argued it was right to move away from what it described as the “buyout monopoly” and encourage greater productive investment through schemes running on.

It also supported the proposed low-dependency funding threshold for surplus extraction, describing it as a reasonable balance between protecting members and giving trustees greater freedom to unlock value.

However, the NCC warned that the reforms could fail to deliver their full potential if they were not considered alongside other endgame measures, particularly the new legislative framework for DB superfunds.

It said: “There is a real risk that these measures will not deliver on their potential if they are not considered as an integrated package.”

The NCC added that it was “disappointed” that the consultation treated surplus flexibilities as an isolated initiative and did not adequately consider how they would operate alongside superfund consolidation, buy-in, buyout and run-on.

One of its central concerns was what it described as a “threshold asymmetry” between surplus extraction from sponsor-backed schemes and profit extraction from superfunds.

Under the proposed surplus regime, schemes could extract surplus once they were fully funded.