Ahead of the UK government’s September 2 deadline for responses to its consultation on implementing the new defined benefit surplus regime, consultancy firm XPS has called for regulatory safeguards to give trustees greater confidence in using the flexibilities.
According to XPS, clearer requirements around funding, covenant protections and appropriate advice would help schemes unlock surplus while maintaining member security and confidence in the regime.
These changes include requiring trustees to consider whether low dependency will remain the appropriate measure for scheme funding, requiring trustees to consider the type and suitability of any protections in place against the risk of future underfunding, and explicitly including covenant advice among the categories of appropriate advice set out in the regulations.
XPS believes these measures would provide trustees with a clearer framework for decision-making and help to limit the risk of poor outcomes that could undermine confidence in the new regime.
Arabella Slinger, head of covenant at XPS, says: “Incorporating covenant and protections into a surplus policy is a natural part of what well-managed schemes are doing. Reflecting this in the regulations will help trustees and employers to unlock the benefits of surplus strategies while protecting the hard-won funding improvements that have been achieved over recent years.”
The Independent Governance Group has also previously claimed that the government must introduce safeguards to protect trustee independence as it gives well-funded DB pension schemes greater flexibility over surplus.