Nine in 10 defined benefit pension schemes expect to release surplus under the government’s proposed new surplus flexibility rules, according to a poll conducted by LCP.
The survey, carried out during an LCP webinar on the Department for Work and Pensions’ draft regulations on surplus release, found that 63 per cent of respondents expect to release surplus in instalments, while 29 per cent would prefer a single payment. Just 8 per cent said they had no intention of releasing surplus.
When asked which funding measure should be used to determine how much surplus could be released, 56 per cent favoured the buyout funding measure, while 44 per cent preferred a low dependency basis. Most respondents also indicated they would want to maintain a buffer above their chosen funding measure.
The webinar followed the publication of draft surplus release regulations by the DWP and accompanying guidance from The Pensions Regulator earlier this month.
LCP said schemes considering surplus release will need to incorporate it into their endgame planning, determine an appropriate level of surplus to release across a range of scenarios, understand the impact on the employer covenant, and ensure robust governance and decision-making processes are in place.
LCP partner and head of endgame innovation Jonathan Griffith says: “The direction of travel is clear: most respondents expect surplus release to become part of their pensions toolkit. Schemes will need the right governance and appropriate decision-making frameworks in place in order to make the most of the available opportunities whilst protecting members and avoiding problems down the line.”
LCP covenant partner Helen Abbott says: “Surplus release can unlock real value for both employers and scheme members, but it needs to be managed carefully. Strong contingency planning, including covenant monitoring, and triggers for action if things don’t go to plan are vital. The guidance from TPR emphasises the role contingent assets can have in underwriting risk, and we have seen this be a key feature in surplus release discussions so far.”