Katherine Easter, Interim Chief Executive of the PPF, said: “We welcome DWP’s consultation and look forward to working collaboratively with DWP and industry to establish the best design for a public sector consolidator that delivers the government’s objectives. The proposed consolidator would maintain the security of members’ benefits, give more choice to schemes and, dependent on scale, invest materially more in assets which support the wider UK economy and UK gilt market. Given the £1.4tr scale of the DB sector, we believe the public consolidator can work alongside existing commercial providers, supporting a healthy market by providing an attractive option for schemes unable to access existing solutions on reasonable terms. We plan to engage with stakeholders both on the detailed design of the public consolidator and further viable approaches which use the PPF’s skills and capabilities; we stand ready to support the government achieve its objectives in any way we can.”
Laura McLaren, Head of DB Actuarial Consulting, Hymans Robertson, said: “We’re pleased the Government has supported our call to link conditions for surplus extraction to scheme funding level and security of accrued rights. We also welcome the proposal that extracting surplus will not be conditional on use of funds for particular purposes. Surplus extraction will be more effective where it is part of a larger reframing of the statutory objective for DB, to bring about a DB renaissance and secure future pension provision.”
Isio Director and Head of Research & Development, Iain McLellan, comments: ‘’The last 20 years of defined benefit pensions regulation has prioritised the security of benefits that have already been built up over everything else, including future accrual and discretionary benefits. This has led to a narrow focus on de-risking and ultimately fully insuring accrued benefits for some £1.4 trillion of assets. This position is exacerbated by the complexities of the exact wording on schemes rules as to whether or not any surplus that may exist can be returned to the sponsor.
The Government’s consultation, launched today, looking at options for using surpluses could help unlock the huge value potential stored in UK DB pension schemes. This includes looking at introducing a statutory override to allow scheme rules to be changed to enable surpluses to be distributed, changing the tax rules to allow one-off payments to members and looking at safeguards to ensure excessive surplus distributions are not paid. We believe these are the right areas to focus on if we are going to enable DB schemes to deliver more value for members and the sponsors that have supported them over many decades.
The consultation also includes more detailed consideration of a public sector consolidator. We believe the industry has already shown a wide variety of innovation in this space and this may be a solution in search of a problem.”
Simon Kew, Head of Market Engagement at leading independent consultancy Broadstone, commented: “The DWP consultation on DB schemes seeks to deliver on many of the government’s stated aims for the sector, primarily freeing up capital to invest more productively.
“Given the drastic improvements in funding levels, it makes sense to enable greater scheme flexibility for surpluses and could deliver significant economic benefits. However, any extraction of surplus from a scheme will have a knock-on impact for member security – we are pleased to see the DWP acknowledge this but protecting member benefits must be the utmost priority as these reforms progress.
“The outlined plans for establishing a public sector consolidator by 2026 could open up opportunities for some schemes – particularly at the smaller end of the market – albeit we are expecting new entrants in the market this year to provide further supply for unprecedented de-risking demand.”
Chair of the Association of Consulting Actuaries (ACA), Steven Taylor: “The ACA will be consulting members’ views widely on today’s important consultation. On ‘surplus extraction’, we believe the right questions are being asked, for example around possible overrides to scheme rules where they are currently a barrier to efficient outcomes. However, under any approach, we will want to see that there is the flexibility available to sponsors and trustees to make decisions that best suit their scheme specific situations and protect savers. A key consideration must be that members’ benefits remain suitably protected whilst clarifying for all schemes the pathways that are available to allow for surplus extraction where this is appropriate.
“On a future public sector consolidator, there is a key need to ensure that the outcome does not risk undermining already well-functioning commercial market solutions that might offer better outcomes for scheme members and sponsors. The proposal in offering opportunities to a wide range of schemes appears far broader than initially expected and will require particularly close examination. For example there is a need to ensure measures do not introduce, to members’ detriment, a “get out clause” to avoid implementing the appropriate long term strategies and journey plans that are now expected in well run schemes that are well able to achieve buyout over a reasonable timeframe. Proposals that result in simplifying benefits, whilst well intentioned, would also necessarily create winners and losers among scheme members and these trade-offs will need to be scrutinised. ” added ACA Chair, Steven Taylor.
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