The surpluses accumulated in DB schemes are key to unlocking investment in the UK economy and kick-starting the government’s growth agenda, according to a new report from the Social Market Foundation.
The new publication, titled ‘The economic miracle of Great Britain’ points out that DB schemes have grown exponentially in recent years. Yet in most cases funds continue to be invested in ‘safe’ assets with relatively low returns to ensure future guaranteed liabilities can be paid. This limits investments into high-growth sectors prioritised by the Government.
The report says that the government has claimed that £160bn of pensions assets is available to be invested into productive finances, but the SMF says the actual amount is likely to be lower and how these assets will be used remains in question.
It adds that policymakers hope that releasing surpluses will increase the productivity of these assets, and bring in much-needed tax revenue for the government, but the SMF says that while potential benefits are large, they remain uncertain.
It recommends that the PPF should increase its coverage to 100 per cent of benefits, to help protect members, should schemes pursue a higher-risk investment strategy.
It adds that policymakers should confirm the release of pension surpluses to a minimum of full funding on a low-dependency threshold, where trustees allow.
The SMF also recommends that regulations should be opened gradually, through an incremental approach that ensures funds are spent productively and that they are to the benefit of members.
The Society of Pension Professionals welcomed the report but said there was a need to ensure members are properly protected. Chair of its DB committee Chris Ramsey says: “In certain circumstances it makes sense to return surpluses to employers, which is why the SPP are supportive of making this easier, provided there are appropriate safeguards for members.
“Returning surplus could not only boost employers, but also be in members’ interests if the surplus is shared with them, and can support the UK economy. A potential win-win-win!
“Nevertheless, both the Government proposals and the SMF recommendations published today carry inherent risk. Any extraction of surplus could reduce the security of pension scheme member benefits. As a result, the proposals need to be very carefully considered, with industry fully engaged and consulted, to ensure an appropriate balance is maintained.”
