Proposals for reforming Defined Benefit pension schemes, set out by the Chancellor in his July Mansion House speech could see DB FTSE 350 schemes access up to £50 billion, an analysis by Barnett Waddingham suggests. It notes that the DWP has called for evidence that covers various alternative approaches to DB scheme funding.
“One of the central ideas in the call for evidence is making it easier to return surpluses to sponsors. We have focused on this aspect of the potential reforms, assuming that any surplus above 105 pct funding on a Fast Track low dependency basis would be available to return to sponsors”, the analysis says.
Given these assumptions, it suggests that around £50 billion of surplus fund would currently be available to be returned to sponsors of FTSE 350 DB schemes, if the Mansion House proposals are agreed. This equates to around 10% of the FTSE 350 DB scheme assets and is equivalent to around two-thirds of the total dividends paid in 2022 by the FTSE 350 DB scheme sponsors.
Barnett Waddingham says in its summary the Mansion House proposals do have the potential to make a seismic difference to the pensions landscape. Our analysis illustrates the enormous level of surplus funds in the FTSE 350 DB schemes that could be unlocked by the reforms. While clearly good news for sponsors, the reforms will need careful consideration to ensure that they also deliver for members and the economy as a whole, as hoped.
“Currently trustees and sponsors are in a difficult position. It is not clear how they can effectively plan for the long term when such vastly different reforms (i.e. as well as the new DB Funding Code) are under discussion. While it is essential to get the details of any reform right, there is a risk of missed opportunities and sub-optimal decision, if clarity is not provided soon.”