Government’s plans for extracting ‘surplus’ DB funds go much further than most have realised

Figures from the Pensions Regulator (TPR) that were released alongside the Treasury’s announcements on planned pension reform highlight the enormous sums that can potentially be distributed into the economy from DB schemes according to LCP.

The Government has announced it will legislate to more flexibly enable surplus from DB schemes to be returned to employers and/or shared with scheme members as additional pension benefits. To help inform policy, the Department of Work and Pensions asked TPR to estimate the latest values of DB scheme assets, liabilities and surpluses.

LCP says that the key number referenced in the government’s own figures, is the collective current £160bn surplus for schemes measured on a “low dependency” basis. This is significantly more than the £100bn surplus for schemes when measured against the more prudent measure of the cost of buying-out the benefits with an insurer.

David Wrigley, Partner in LCP’s Investment team, commented:

"The Government’s focus on the £160bn figure is noteworthy as it suggests a view that surpluses should be available for distribution before a DB scheme reaches full funding on a buy-out measure. This has the potential to really increase the appeal of running-on pension schemes with the potential for sooner, and larger, access to surpluses. The policy intent is welcome, with the prospect of real economic growth wins for the UK, all while protecting the gilt market. However, “the devil will be in the detail”, in particular the detail of how members will be protected and the extent that pension scheme trustees are legally constrained in their use of any new flexibilities.”