More than nine out of 10 businesses plan to access surplus funds in closed DB once the government amends legislation to permit this.
The research from Brightwell, the company that manages BT’s DB scheme, said that almost half of the business surveyed plan to use these funds to invest in their UK operations — supporting the government’s objectives to boost the economy.
In addition, almost a third said they would use these funds to cover the cost and operations of running a DC schemes, with one in five (22 per cent) of stating the surplus released would be used to directly fund contributions to the DC scheme.
In this survey of larger DB schemes (worth more than £500m), 43 per cent of the finance decision makers surveyed said they’d want to access scheme surplus in the ‘near term’ while over a quarter (27 per cent) said they will request access immediately. A further 16 per cent said they would want access in the medium term, and 7 per cent in the longer-term.
When asked about their plans for utilising the funds, nearly half (49 per cent) indicated that they would reinvest in UK operations. Additionally, 44 per cent intend to share it with members of the defined benefit scheme, 42 per cent plan to reinvest in global operations, 40 per cent would distribute the funds to shareholders. Thse were all higher than the percentage who said they would be using funds to support the DC scheme.
The Brightwell research also found more companies now view their DB pension scheme as an asset (33 per cent) than those that consider it a liability (28 per cent).
The government is expected to include legislation in the forthcoming Pension Schemes Bill that will allow scheme to request access to these funds, subject to trustee approvals.
A third of respondents said having easier access to surplus would encourage them to run on the pension scheme rather than seeking a buyout with an insurance company. Nearly two thirds (63 per cent) said it will encourage a more return seeking investment strategy to help generate future surplus.
Brightwell CEO Morten Nilsson says: “Up until now, UK businesses had full responsibility for the downside of their DB pension schemes but no access to the upside. The proposed changes will introduce some welcome symmetry into the equation and provide a clear incentive for employers to run their pension schemes on rather than buying them out with an insurer.
“For the changes to succeed, care needs to be taken. Surplus should only be released where schemes are sufficiently well-funded and trustees are satisfied it is safe to do so. A gradual release would be the most prudent approach to prevent any regret risk.
“Running on a pension scheme isn’t without challenges so having the right investment strategy and expertise is key.”
PLSA director of policy and advocacy Zoe Alexander adds: ”The funding position of defined benefit schemes has rarely been stronger, and that is a great boost for the members of those schemes. Schemes must of course continue to monitor the global economic situation carefully given current uncertainties, in order to minimise risks to those surpluses.
“Where they have sufficient confidence, surplus release by schemes provides an opportunity to improve member benefits, boost DC pension contributions, and support new types of investment. It must be accompanied by strict controls to protect member benefits. That’s why PLSA supports measures in the forthcoming Pensions Bill to provide clear a legal and regulatory framework for surplus release.”
