Leading pension bodies have welcomed the DWP’s draft regulations for unlocking surpluses from DB schemes.
The consultation on these regulations closes today. The Society of Pension Professionals (SPP) said the rules as they stand offer an “appropriate framework” for well-funded schemes to release surplus while also offering protection for members.
Meanwhile PASA says it did not expect the proposed arrangements for employer surplus payments to create significant operational concerns.
The SPP says it support the us of a a low dependency funding basis as the minimum funding test and believes decisions on the level of surplus released should remain with trustees, taking account of scheme-specific circumstances and covenant strength.
However, the SPP is calling for changes to make the regime more practical, particularly for schemes intending to remain on a long-term run-on basis. It adds that the proposed process is geared towards one-off payments and could make regular or phased distributions unnecessarily burdensome.
The SPP is also seeking greater flexibility around the payment process, including allowing trustees to release less than the provisional amount without restarting the process, and extending the proposed five-working-day period between actuarial certification and payment.
The SPP also highlights the need to align pensions and tax legislation for segregated schemes, where current uncertainty could delay legitimate surplus returns.
Chair of the SPP’s DB Committee Jon Forsyth says: “The SPP welcomes the Government’s proposals, which at a high level provide a sound framework for well-funded DB schemes to make productive use of surplus while protecting members.
However, the regime needs to work effectively in practice. Greater flexibility around regular and phased payments, the actuarial tests and payment timetable would help ensure the new framework delivers its intended benefits without creating unnecessary governance burdens or other unintended consequences.”
Meanwhile in its response, PASA said it would like to see more clarity around on certain key aspects of this process, to support the consistent administration of member surplus payment. It says this includes the treatment of deferred entitlements, the timing of payments, member communications, ongoing disclosure, pensions dashboards, record keeping and the potential use of de minimis thresholds.
In its response PASA says: “Once a member surplus payment has been allocated, schemes may need to administer the entitlement for many years before payment can be made. Clarity across the full lifecycle of these entitlements will help trustees and administrators apply the new flexibilities consistently and support good member outcomes.”
