Over the recent weeks, there has been a flurry of activity and announcements from DWP and the Pensions Regulator that seek to build on these strong funding levels, which should broaden endgame discussions and options available to schemes, sponsors, and members.
On 29 May, the UK Government responded to its consultation issued last year on new options for DB Pension Schemes. Under the Government’s plans, trustees are expected to be able to modify their scheme rules to provide for surplus sharing to members and sponsors from their DB scheme.
TPR followed this announcement with new guidance for trustees and sponsors on endgame options. This encouraged schemes to actively consider their endgame and, where appropriate, to develop a policy on the potential future use of surplus. Combined, it is clear that endgame strategy should be at the top of trustees’ and sponsors’ pension agendas. With more choice comes more opportunities and risks, and it will be important for all parties to proactively work their way through the new rules and guidance to deliver the best outcomes tailored specifically to each scheme.
Aaron Chaderton, Consultant and part of the Endgame Innovation team at LCP, added: “Another strong year-end of accounting results, coupled with the joined-up rhetoric from the Government and Regulator about surplus, continues to suggest that wide-ranging discussions around endgame are here to stay. An increase in flexibility and choice should mean trustees and sponsors are able to actively consider the right endgame for them rather than being constrained by rules.”
Harry Fitchet, Associate Consultant and part of the Endgame Innovation team at LCP, added: “The clarity provided by the Government on dealing with surplus will be encouraging for schemes exploring their endgame options, and give confidence to sponsors who may have previously been concerned about trapped surpluses. That said, for many sponsors, the right thing will be to transfer the pension risk away from the balance sheet in a traditional insurance or superfund transaction.”
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