PLSA welcomes more options for DB but wants a statutory regime for superfunds before consideration of a public sector consolidator

PLSA members are keen to have more options for DB schemes, both in terms of the funding of schemes and regarding the “DB end game” so we welcome the Government’s focus on this area.

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. On the public sector consolidator (PSC) proposal, the submission reiterates the PLSA’s view that more time is needed to determine what, if any, market failures or gaps exist, that would warrant establishing a PSC. Our members would prefer to have a statutory regime in place for DB Superfunds before consideration is given to setting up a PSC. PLSA members believe that if a primary regime is provided for DB Superfunds, trustees of closed DB schemes would be more likely to opt for this consolidation option. PLSA also believes more thought should be put into encouraging consolidation via DB Master Trusts.

However, if the Government does decide to establish a PSC, the PLSA believes it should operate to the following criteria:

• Eligibility should be limited to smaller schemes (e.g. the size limit could be set at schemes with fewer than 1,000 members) that may be ‘unattractive to commercial providers’ (although further work may be needed to more precisely define this). This is necessary to avoid concerns about ‘scope creep’ and overexpansion by the PSC and minimise the potential disruption to the superfund and insurance buyout markets, which is one of the government’s stated aims. In our view, allowing larger schemes to transfer into the PSC would create market distortions.

• The PSC should be underwritten by the government – under no circumstances should the PPF reserves be considered as a source of underwriting, particularly as a significant part of the PPF’s funding has come from sponsoring employers and DB schemes.

• The PSC needs to operate completely separately from the PPF and assets of the PPF and the PSC should be legally separate and ring-fenced.

• The PSC needs to be simple, fair and easy for employers and members to understand, and relatively straightforward for schemes to enter.

• And if the government presses ahead with a targeted PSC, we would hope to also see a Bill putting superfunds on the same legislative footing (ideally, before the introduction of any PSC Bill).

PLSA members generally support greater surplus sharing among DB schemes. However, this should only happen if substantial protections of member benefits are put in place. 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 not guaranteed to persist in the future. 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. Most members are not confident that being allowed to access a surplus would lead to a change in the investment strategy of many schemes. If a surplus is released, ideally it would be used to enhance other pension scheme benefits, including DC benefits, offered by the employer involved.

The full submission is available from the PLSA website.

Nigel Peaple, Director of Policy & Advocacy, PLSA, said: “PLSA members favour having a wide range of options when it comes to the funding of DB schemes and securing member benefits as the schemes mature.

“While we think release of surplus merits consideration, it is very important that any action only takes place where the interests of scheme members are secured. It also might offer a chance for some employers to use the surplus released to increase DC pension contributions without incurring tax penalties. In our discussions to date, it is not clear that release of surplus would result in a large number of schemes taking more risk in their asset allocation.

“Regarding the creation of a public sector consolidator, as we set out in our DB Task Force reports from 2017, consolidation brings benefits both in terms of efficiency and better governance. However, we would prefer the Government to press on with championing private sector solutions such as DB Superfunds and DB Master Trusts. If the Government decides to create a Public Sector Consolidator, we think it should be limited to smaller schemes that may be commercially unattractive, be entirely separate from the PPF, and be under-written by the government.”

Mark Smith, Head of Media Relations
020 7601 1726 | [email protected]

Cali Sullivan, PR Manager
020 7601 1761 | [email protected]