Ministers have confirmed they will change the law to allow money to be removed from DB pension schemes and handed to companies. The Pension Security Alliance – a group of businesses, campaigners and pensions professionals – says that the proposals to allow “surplus” money to be “extracted” from pension schemes are not in the interests of more than 10 million members and beneficiaries of private-sector DB pensions.
Those people must be consulted about any change that could put their pension at risk, the group says, warning: “Ministers and trustees must not ignore millions of people who have earned their pension and don’t want it put at risk.”
The Pension Security Alliance is highlighting a Department for Work and Pensions consultation document from 2024 which says: “Any extraction of surplus will reduce security for members.”
Allowing money to be removed from pension schemes before members’ benefits have been secured runs the risk of those schemes running short of money in future if financial conditions change, the Alliance said. In that case, some schemes could collapse and be bailed out by the Pension Protection Fund, which sometimes pays reduced pensions to members.
The Pension Security Alliance is made up of:
• Silver Voices, the only independent, individual membership organisation for senior citizens in the UK.
• The Older People's Advocacy Alliance (OPAAL), a charity promoting the rights and needs of older people.
• John Ralfe, a widely-respected pensions consultant and chair of two pension schemes.
• Pension Insurance Corporation, a specialist insurer of DB pensions
• Just Group, a specialist UK retirement business.
In a statement announcing its launch, the Pension Security Alliance said: “Pension schemes exist to pay the pensions of workers who have earned their retirement income. They’re not piggybanks for others to dip into. Millions of people rely on these schemes for a retirement income they have earned. It’s not right for ministers to put those pensions at risk like this. The Government’s own proposal document admits that extracting cash from pension schemes increases the risk that schemes won’t be able to pay pensions in full. Instead of pushing ahead with these risky plans, we urge ministers to think again and listen to the millions of people who want them to put the security of their pensions first. The Government plans are set out in a Department of Work and Pensions paper that says ministers will “consult” on the detail of surplus extraction plans. The same document reveals that the Government drew up its policy having heard from only 5 of the millions of people who have DB pensions.
The Pension Security Alliance said: “It's encouraging that ministers say they will consult on something that could put members' pensions at risk - to make that consultation meaningful, ministers should make sure that members are fully and directly involved - we suggest a programme of public engagement meetings and opinion research among the millions of people affected. It's vital they aren't ignored."
The Pension Security Alliance is urging people with DB pensions to write to their MP and pension scheme trustees to raise concerns about the surplus plans.
The Pension Security Alliance said: “This is your retirement that politicians and trustees are putting at risk and this is your chance to tell them what you think about that. If you don’t want more risk over your pension, speak up now.”
Dennis Read of Silver Voices said: "We are very worried that the Government plans to allow companies to extract funds from pension schemes to encourage investment and growth. This is risking the future pensions of employees and retired workers at a time when security in retirement is essential.
“Energy prices are so dependent on geopolitical instability that assured income when you no longer have a job preys on the minds of all those facing retirement. Previous employer 'holidays' over their contributions led to the collapse of some pension schemes and we don't want this situation to reoccur again as a result of hasty withdrawals of funds under any new Government proposals.
“If a company has cash flow problems it will be tempting to raid the pension fund, claiming that the purpose is investment, so leaving the scheme underfunded and unstable if the company collapses."
Colette Isaaks, director of OPAAL (The Older People's Advocacy Alliance) said: “We are concerned that the proposed removal of surplus or excess funds from private defined benefit pension schemes, could be contrary to transparency, fairness, and the rights of pension policy holders. OPAAL strongly urges government to ensure that any changes to pension policy are subject to a full and meaningful consultation with those most directly affected — the pension scheme members themselves. The voices of older people must not be an afterthought in policymaking. They are the rightful stakeholders in these pension schemes as they have supported them throughout their working lives, and depend on them in retirement.”
John Ralfe, independent pensions consultant and chair of two pension schemes, says: "The detailed Regulations that ministers are proposing must make sure member security is the absolute priority. Surpluses" must be defined on a tough basis. Scheme assets must also match liabilities to minimise the risk of market movements causing any future deficit. If there is a future deficit after a surplus has been paid, then companies must be legally obliged to re-pay some, or all, of the cash removed. The current law requiring trustee agreement to any surplus being removed, must be maintained. Companies should expect to share the surplus with members, by increasing their pensions, which give trustees an incentive to agree."
Tracy Blackwell, CEO of Pension Insurance Corporation said: “We think the views of DB pension scheme members, many of them elderly, many of them classified as vulnerable, should be properly considered in any decision about a policy that the Government’s own document says would reduce the security of their pensions. So far, their voices have been absent in this debate. We know that people who rely on a DB pension are afraid of changes that could make their pensions less secure. It took a long time to build up a legal regime for DB pensions that puts members first, after the scandals of the 1980’s and 1990’s. Members are clearly concerned at the prospect of these vital protections being watered down and I would advise them to write to their MP about these proposals.
“Finally, it is right for us to acknowledge that like all the other participants in this debate, PIC has an interest in the outcome. We take on DB schemes and pay the pensions of 400,000 people, and have paid more than £16 billion to our pensioners so far. Our view is that it is fundamentally right that members’ benefits are fully secured before the sponsoring employer gets any cash back – a position which should align everyone’s interests. Minsters need to be very careful with this issue given that this is about the financial wellbeing of generally older, and potentially vulnerable, people.”
Stephen Lowe, director at retirement specialist Just Group said: "The discussion surrounding the practice of surplus extraction from pension funds seems to overlook the perspectives of the most crucial stakeholders – the pension scheme members and their beneficiaries, who rely on these pension promises. The responsibility for deciding whether to permit such surplus extraction lies with the Trustees of the pension scheme. They bear the ultimate accountability in this matter. Their role is well-defined and singular: to safeguard the benefits owed to the pension scheme members. I’m confident Trustees feel this accountability to their members and will continue to have this goal front and centre as they receive representations from other communities.”
|
