'Extracting surplus from pension schemes will only work if member benefits are 100% protected by a new PPF underpin' – Steve Webb,

DWP has today published its promised consultation on reforms to the Defined Benefit pension system. The consultation covers:

Well-funded schemes, and the potential to generate surpluses which can be shared between members and sponsors;

Smaller schemes, primarily those unlikely to be able to secure an insurance buyout, who could be consolidated into a new ‘public consolidator’ run by the PPF. Commenting, Steve Webb, partner at LCP said:

“It is welcome that the Government is moving forward with ideas about the better use of £1.4 trillion of assets held by DB schemes. The suggestion of a ‘statutory over-ride’ to make sure that all DB schemes in robust financial health could explore options around surplus extraction is a very positive one”

“But with regard to surplus extraction, we do not believe many trustees would be reassured if the only safeguard for members before money could be taken out was that the scheme was currently well funded. Our proposal for full PPF cover, backed by a new PPF super-levy, would give trustees comfort that member benefits were fully protected regardless of what happened to the sponsoring employer in future, and could free up many billions of pounds of DB pension scheme assets to be invested more productively”.