The pension industry is seeing significant divides regarding who should benefit from DB pension scheme surpluses, according to LCP webinar on DB funding reform.
The LCP webinar, hosted by LCP partner and former policy head at the Pensions Regulator, David Fairs, focused on the DWP’s recently closed consultation on options for DB funding reform and featured contributions from Work and Pensions Committee Chair, Sir Stephen Timms, and LCP’s Sir Steve Webb and Laasya Shekaran. The primary focus of the webinar was on utilising the Pension Protection Fund (PPF) to facilitate more productive and higher-return investments by DB pension schemes.
The webinar attendees were surveyed about their priorities if reforms generated increased surpluses for DB schemes. The findings showed that the largest group, 37.5 per cent, favoured the companies that created the scheme and contributed the majority of the funding in order to reap the most rewards from any gains. Another sizeable share, 30.5 per cent, supported DB members receiving benefits, maybe through increases in discretionary benefits. Another substantial percentage, 29.7 per cent, also favoured giving the surplus to the DC generation, which was a goal shared by Pensions Minister Laura Trott.
LCP’s proposal to focus on the biggest and best-funded schemes, the PPF’s proposal to consolidate numerous small schemes, and the “Tony Blair Institute” proposal for broader consultations involving organisations like the Local Government Pension Scheme and NEST were among the approaches that were discussed.
Timms expressed the Committee’s worry about whether the DB funding regulations are sufficient to allow open schemes to carry on and expand. In addition, given the LDI crisis of the previous year and the substantial transfers of funds from DB pension plans to the buyout market and the subsequent investment in a constrained set of assets, they were interested in identifying potential systemic concerns.
LCP partner David Fairs says: “It is clear from the results of our survey that there is plenty of potential to benefit a wide range of stakeholders if DB surpluses can be grown and shared. If member benefits can be protected in the way we have suggested, the biggest and best DB schemes would be freed up to generate bigger surpluses. There is clearly an appetite for those surpluses to do good across both the sponsoring employers and existing DB members but also to enhance provision for future generations of retirees. We hope that the Government will see the potential for reform and look forward to hearing their conclusions in November’s Autumn Statement”.
