Our Response to the DWP Consultation on "Options for DB Pension Schemes"
In our comments to the specific consultation questions the theme is:
Look in detail at the risk-benefits available. The conclusion is all stakeholders can benefit where there is agreement to “Run On 4 Good”.
When trustees and sponsors have Run On as a viable option, it can take the overheating out of the risk transfer / life insurance market. Indeed it can galvanise life insurers into offering more attractive proposals to the pension industry because their go to “Gold Standard” status has been given perspective. At present a small group of life insurers are unhealthily dominant. Exercise discretion in the use of surpluses and the case for bulk transfers as currently practised collapses.
The risk-benefit study resets boundaries and looks to the future of UK employment by the sponsor.
Better pensions for past and present employees at reduced cost to the sponsor underlies Run On 4 Good.
Gradualism replaces the Endgame. It is not the End and it is not a Game.
Look in detail at the risk-benefits available. The conclusion is all stakeholders can benefit where there is agreement to “Run On 4 Good”.
When trustees and sponsors have Run On as a viable option, it can take the overheating out of the risk transfer / life insurance market. Indeed it can galvanise life insurers into offering more attractive proposals to the pension industry because their go to “Gold Standard” status has been given perspective. At present a small group of life insurers are unhealthily dominant. Exercise discretion in the use of surpluses and the case for bulk transfers as currently practised collapses.
The risk-benefit study resets boundaries and looks to the future of UK employment by the sponsor.
Better pensions for past and present employees at reduced cost to the sponsor underlies Run On 4 Good.
Gradualism replaces the Endgame. It is not the End and it is not a Game.
Specific policy proposals included in the C-Suite response to the consultation questions are:
Our full consultation response and supporting documents:
- Trust deed and rules be revised by trustee/sponsor agreement to include power to make payments directly to sponsors.
- A statutory override should support the use of surpluses. A statutory maximum be set on the proportion of a scheme’s assets to be paid directly to the sponsor in a year. The proportion can increase over time if not utilised.
- Sustainable low dependency be set at gilts plus 50 basis points plus a 5% asset buffer. Assets to include third party solvency guarantees. Schemes funded to low dependency can accrue and when at sustainable low dependency can pay money to the sponsor.
- Exercising discretion to be encouraged. Existing rules do provide flexibilities as seen in proposals for Discretionary Step Ups. Add to the list of authorised Payments. This could include discretionary payments made to cover inflation up to general RPI increase in a year. This adds flexibility to help those receiving no increases on pre 1997 pensions.
- Funds provided to a sponsor’s current DC scheme by the DB scheme not to be a taxable return of surplus. The amount to be a tax allowable cost to the sponsor.
- The capital value of third- party guarantees provided to a scheme to be tax allowable over 4 years.
- Increase PPF coverage to phase out/eliminate the pre-retirement 10% reduction. Start to add to cover for pre 1997 service. Inflation increase levels being below scheme maxima address remaining moral hazard concerns. These adjustments mean a new top tier for PPF is not required.
Our full consultation response and supporting documents:
| c-suite_pension_strategies_consultation_response_-_dwp_options_for_db_pension_schemes_feb_2024.pdf |
| run_on_4_good_-_pension_funding_strategy_for_2024_1.pdf |
| c-suiteps_analytics_-_run_on_upside_ppf_downside_risk-benefit_analytics.pdf |