First 100 days of government: support well run DB schemes

Despite a shift in occupational pension provision from DB to DC schemes in recent years, DB schemes remain of vital importance to millions of savers in providing a retirement income and to the wider economy through investments in the UK and abroad.

With around 9.6 million members and assets totalling over £1.4 trillion, government should do all it can to allow schemes to operate effectively both in terms of investment decisions and end game options to best secure member benefits.

Indeed, a report from the Work and Pensions Select Committee, Saving for Later Life, found that people who are able to access a DB pension were more likely to be on track for an adequate income in retirement.

With aggregate scheme funding levels now in surplus, following an improvement in funding levels over recent years, the questions of buy in / buy-out, other end game options and surplus release are all being revisited.

As was demonstrated by its DB Taskforce reports in 2017, the PLSA has long supported DB schemes having a wide choice of options for consolidation, and we believe that Superfunds could offer an appropriate end game option for many schemes.

Additionally, while the recent improvement in the funding position of schemes, with around 80% now in surplus, is very positive, this position is based on market rates, and is not guaranteed to persist in the future. It is therefore vital that any considerations around greater surplus sharing among DB schemes, ensures for robust protection of member benefits.

To help both open and closed DB schemes to operate effectively, both in terms of investments and end game strategy, we are calling on the government to support DB schemes in the following ways:

• DB funding rules: Ensure that the final funding code that applies to DB pension funds provides greater flexibility over their investments, to allow open DB pension funds, and closed DB pension funds with long investment time horizons, to take more investment risk where this is appropriate to both ensure ongoing affordability and protecting member benefits.
• Superfunds: Legislate for the introduction of Superfunds to ensure the final Superfund regime offers at least the same level of protection to scheme members as the DB funding regime.
• Surplus release: Introduce regulations to support greater surplus sharing among DB schemes with robust protections of member benefits. In our view, the appropriate measure of when a surplus exists should be that proposed by the DWP for the “low dependency regime”, with an appropriate buffer.

Click here to read what other steps the PLSA is calling on the next Government to enact in its first 100 days to help everyone achieve a better income in retirement.

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