Pensions - Articles - DB pensions overhaul backed but challenges highlighted


The Society of Pension Professionals (SPP) response to the Government consultation, “Options for Defined Benefit Schemes” has set out its members’ views on proposals to make surplus return easier, an opt-in option for 100% protection from the PPF and plans for a public sector consolidator.

 Returning scheme surpluses to employers
 The SPP has welcomed the objective of making it easier to return surpluses to employers for those that want to. Its response states that the measures, “…could create an economically attractive rationale for sponsors to run on pension schemes, whilst maintaining a reasonable level of security for members and potentially making discretionary increases in benefits more likely.”
 
 However, the SPP also highlights that these proposals are not without risk as, “…any extraction of surplus would reduce the security of member benefits” and therefore cautions the Government to ensure an appropriate balance is achieved.
 
 An option for a 100% underpin from the Pension Protection Fund (PPF)
 
 The SPP agrees that the proposals for a 100% underpin for those pension schemes which agree to pay a ‘super levy’ would give assurance to trustees seeking to run on their pension schemes and potentially return surplus to the employer.
 
 However, an annual super levy of 0.6% of buy-out liabilities, as illustrated, would be “prohibitively expensive” – especially as it would only be accessible to well-funded schemes with strong covenants - leading to very low take-up from schemes.
 
 The SPP also expresses concerns about the implementation of such an underpin as without due care it “…may encourage trustees and sponsors to take unnecessary risk”.
 
 A public sector consolidator
 Although noting a public sector consolidator has many potential benefits, the SPP doesn’t believe that the Government has been clear on what it is trying to achieve. The response also strongly cautions against any measures that might “…disrupt the well-functioning insurance market or stifle the development of the superfund market”, strongly suggesting that Government ensures the terms of any public consolidator are consistent with commercial superfunds.
 
 Chris Ramsey, Chair SPP Defined Benefit Committee, said: “Parts of the Government’s proposals to overhaul the DB pensions regime certainly have merit, but as our consultation response makes clear, they are also riddled with uncertainty, risk and challenge. We very much hope that our response provides Government with some food for thought when it decides its next steps for what remains a vital part of the pensions landscape.”
 
 
 A full copy of the SPP consultation response can be found here
 
  

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