The government’s plan to unlock DB pension surpluses could unlock £160bn, based on a lower ‘low dependency’ threshold, including more schemes than the £100bn estimated using the stricter buyout method, according to LCP.
LCP’s analysis of The Pensions Regulator’s latest figures, provided at the request of the Department of Work and Pensions (DWP) to estimate DB scheme assets, liabilities, and surpluses, shows an expanded scope for surplus release eligibility.
According to the TPR data, the buyout surplus for schemes in surplus is around £100 billion. However, according to LCP, the government is considering £160 billion by including surpluses above the “low dependency” level, where schemes invest with minimal risk. This would allow over 1,000 more schemes to access surpluses and increase the surplus for the 2,000+ schemes already in surplus under the stricter buyout rules.
LCP partner David Wrigley says: “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 buyout 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.”
