DB surplus release will be included in pension schemes bill
Image: Andrii Yalanskyi/Shutterstock
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
The Department for Work and Pensions has said that “thanks to the forthcoming pension schemes bill”, trustees and employers will soon be able to release part of their defined benefit surplus.
The bill, expected before parliament’s summer recess, will allow pension trustees and employers to “safely release some surplus to invest back into their businesses and unlock more money for pension scheme members”, the DWP has said. The changes will focus on member protection, and trustees will continue to be required to fulfil their duties towards scheme beneficiaries, it noted.
The government said the changes will support its ‘Plan for Change’ by “boosting economic growth and securing the financial future of millions of UK savers”. It had announced its intention to let companies access DB surplus in January this year.
“The record funding levels for defined benefit pension schemes is excellent news for Britain’s employers and workers,” said pensions minister Torsten Bell. “Fast falling deficit payments offer employers a cashflow boost of over £10bn a year that can support higher wages and investment.”
Bell said that “currently some trustees are held back from sharing the benefits of a surplus, but our plans will allow all schemes to safely do so, delivering greater investment across firms and benefits for savers”.
About four-fifths of DB schemes have a technical provisions and three-quarters a low-dependency surplus, according to estimates by the Pensions Regulator. This is even though asset values have contracted, with scheme liabilities in many cases falling more than assets because of higher gilt yields.
The aggregate low-dependency funding level of the DB universe stands at 112%, but just over half of schemes (51%) are still in deficit on a buyout basis.
The pension schemes bill is expected to include legislation to allow a wide range of significant reforms, from the automatic consolidation of small defined contribution pots, to value for money, a ‘guided retirement’ duty, and now DB surplus release. A technical adjustment to make the Pensions Ombudsman a ‘competent court’ will also be in the bill.
The government has announced that DB surplus access will be in the forthcoming bill before publishing its response to the previous government’s ‘Options for defined benefit schemes’ consultation, expected in the spring.
The Labour government initially focussed its pension reforms on DC and the Local Government Pension Scheme, but DB surplus has come on its radar amid continued economic uncertainty. It is still unclear how the new rules will ensure that released DB surplus is invested to benefit the UK economy, or to improve member benefits.
