Plans for relaxing long-established rules on the way DB pension fund surpluses can be used are due to be announced this spring, the UK Treasury said at end-January, and details will be set out in a reply to a consultation on the “Options for Defined Benefit Schemes ” launched by the previous government.
The Treasury also said that trustees and sponsoring employers could use such pension fund surpluses to ” increase the productivity of their businesses through higher wages or by paying more to scheme members.”
So far, there does not appear to have been mention of how, if at all, members will have any influence or say, in how the surpluses might be used.
According to Chancellor Rachel Reeves, the aim is to ” introduce new flexibilities for well-funded defined benefit schemes to release surplus funds where it is safe to do so, generating even more investment ” for some of the UK’s fastest growing industries.
Broadly speaking the pensions industry has welcomed the outlined plans but has also expressed considerable concern as to details of the proposed changes and how they will work in practice.
In its statement, the UK Treasury did add ” that trustees have an overarching fiduciary duty to act in the best interests of their members. When considering surplus extraction, trustees must fund the scheme and invest its assets in a way that leads to members receiving full benefits.”
And Nausicaa Delfas, The Pension Regulator (TPR) chief executive commented,” Our first priority must be to ensure pension scheme members have the best chance of receiving their promised benefits.” The Pensions and Life Time Savings Association (PLSA) suggested ” surpluses could be used to increase DB scheme benefits or ….. redirected to fund contributions to sponsoring employers’ defined contribution (DC) schemes”
Another commentator again stressed that the key to success in any surplus distribution (and that needs a very careful and tight definition) “is that pension scheme trustees have enough guidance that distributing a surplus aligns with their fiduciary duties to act in the best interests of their members.”
Meanwhile Unite, one of the UK’s largest unions, is warning the Chancellor to exercise extreme caution over its DB surplus distribution plans and would like to see that workers must have an equal voice in decisions over surplus pension investments, which should always be used in ways that benefit scheme members, not just employers.