“DB Surplus Release: risks, rewards, & responsibilities” explores what constitutes a surplus, when releasing surplus may and may not be appropriate, the benefits and risks for members and employers, investment and governance issues, and the wider consequences for the DB pensions landscape.
In setting out the risks, rewards and benefits of surplus release in detail, issues highlighted include:
• surplus release is not without risks and will not be suitable for every pension scheme
• major policy changes also bring the risk of unintended consequences
• it’s likely that pension scheme members will be expected to share in the benefits of any surplus release - one-off lump sums would prove a useful and likely very popular option but are not (currently) permitted under the pensions tax regime
• employers can benefit from surplus release in many ways, some of which are already possible e.g. capital expenditure or other investment
Alex Beecraft, a member of the SPP’s Covenant Committee and Chair of the SPP’s Working Group on surplus release, said: “While the factors that drive decisions on surplus release will vary from scheme to scheme, the core themes are simply those that Trustees, employers and advisers have considered over the last decade to reduce risks for members. This should provide confidence that in the right situations the associated risks can be managed, monitored, and mitigated to improve outcomes for all stakeholders.
This SPP paper serves as a useful tool to quickly, yet comprehensively, identify the risks, rewards and responsibilities associated with surplus release. It should prove useful to a wide range of industry professionals, policymakers and other stakeholders, and support the DB industry’s transition from a culture of wealth preservation to one of wealth creation.”
This SPP Paper is available here.
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