More freedom in accessing scheme surpluses may be beneficial to sponsoring employers as well as members, according to TPT Retirement Solutions.
TPT calls for a statutory override that would permit the sharing of scheme surplus in response to the Department of Work and Pensions (DWP) Consultation on the Options for Defined Benefit Schemes.
TPT emphasises the value of having constructive discussions with sponsoring employers while highlighting the need for trustees to uphold their governance and management obligations. The idea behind this strategy is to get the government to think about more flexibility in excess access and to start talking about end-game planning rather than quick buyouts.
According to TPT, if buyouts are postponed, insurers may eventually lower their rates as their schemes develop. Moreover, sponsors might be more likely to offer securitisation letters or contingent assets as extra security for the scheme if they are allowed to split excess gains.
TPT recommends a public consolidator to target the smaller end of the market, where advising costs frequently prevent schemes from accessing commercial consolidation options.
TPT does stress, though, that any public consolidator must function inside pre-existing structures and not have a negative impact on the commercial sector.
TPT promotes equal benefits for the whole industry under explicit legislative regulation, as well as fair treatment for both public and private operators. This strategy would make it easier for smaller schemes to consolidate.
TPT Retirement Solutions chief executive David Lane says: “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.”
