More flexibility to access surplus could benefit sponsors and members

TPT Retirement Solutions, one of the UK’s leading providers of workplace pensions schemes, believes providing more flexibility to access scheme surpluses could benefit members and sponsoring employers. TPT has shared its views in response to the Department for Work and Pensions (DWP) Consultation on the Options for Defined Benefit Schemes.

TPT believes that there would be significant benefit if DB schemes had a statutory override to enable the sharing of scheme surplus. Within this framework, TPT recognises that trustees should clearly maintain overall responsibility for the governance and management of the scheme while being mindful to maintain a constructive dialogue with the sponsoring employer as the key financial contributor to the scheme.  

TPT hopes its response will encourage the Government to allow additional flexibilities in how schemes can access their surplus. TPT argues that if some surpluses could be shared equitably between sponsors and members, rather than be paid over to insurers as buyout premia at the earliest opportunity, it would encourage a new dialogue over end game planning. Even a delay in the time to buyout would lead to reduced pricing from insurers as the scheme further matures. If sponsors are allowed to share in the potential return of surpluses, they may also be willing to offer additional security to the scheme for example in the form of contingent assets or securitisation letters.

Role of the Pension Protection Fund (PPF) in consolidation – Any ability to standardise benefits should be extended to private sector consolidators to ensure a level playing field.

On the proposals for the PPF, TPT believes it may be beneficial to have a public consolidator, but focused on the smaller end of the market for those schemes that are unable to access commercial consolidation solutions. All too often smaller schemes are not of interest to the commercial providers and are weighed down by disproportionately high advisory fees.  

However, TPT believes that any public consolidator introduced must fit within the existing framework and not negatively impact the commercial market. For example, TPT argues that if the public consolidator is to be able to standardise benefits, then so too should the commercial operators.  For the public consolidator to be able to standardise benefits and for this mechanism not to be available to the commercial operators would distort competition.

TPT recommends that benefit standardisation should be available across the industry though this would clearly need to be regulated within a clear legal framework. Allowing this would also enable smaller schemes to access consolidation opportunities.

David Lane, Chief Executive at TPT Retirement Solutions, comments:

“Proposals to give schemes more flexibility to access surpluses would be welcome. These reforms could create a much greater incentive for schemes to consider run-on, serving as an alternative solution to an insurer buyout. This could benefit trustees, sponsors, and members by providing more endgame options. Running-on to access scheme surpluses could lead to improved member benefits and increased business investment.”

“For schemes with their eyes on the endgame but still keen to derisk, using a DB scheme consolidation option could be a good approach. It is important the industry focuses on continuous innovation, an example of this could be giving DB consolidators the ability to standardise benefits through a carefully regulated process. This would drive innovation in the consolidation market and allow many more commercial options to proliferate. Creating a public consolidator that could standardise benefits, but not allowing commercial operators to use this mechanism would present an unfair advantage.”

For more information on DB schemes and consolidation options visit our Defined Benefit page.