Straightforward Amendment would have major impact on financial decisions

Baroness Altmann’s Amendment to ensure actuaries work to compare bulk transfers with Credible Alternatives ahead of trustees making surplus payments to sponsors was heard.

Amendment 33: Clause 10, page 11, line 22, at end insert--
“(ca) requiring the relevant actuary to confirm that work to comply with Technical Actuarial Standards issued by Financial Reporting Council on risk transfer processes has been completed.’
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Member’s explanatory statement:
This amendment will ensure that prior to a surplus payment being made the trustees and sponsor have considered the impact on bulk transfer and run-on strategies currently required under TAS300V2.1 P5 other financial considerations for the scheme and the sponsor.

The Amendment is significant because with the data for a risk-benefit assessment generated by the work of the actuaries, the decision of stakeholders are likely to change.  In the debate, the Minister Baroness Sherlock said that FRC and TPR would ensure that the work and Technical Actuarial Standards were aligned.  She said that the Amendment was not needed because the requirement set a long term strategy.  TPR would expect trustees to take professional advice from their actuaries on it.


Baroness Altmann

Baroness Altmann is a former pension minster and a recognised expert on investment and later life issues.
(Non-Affiliated)

“My Lords, I hope that noble Lords will understand as I go through my remarks that I believe my Amendments 33 and 33A are incredibly important to the future of defined benefit schemes and the aims of the Bill.”
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“There is no standard calculation methodology, but the DWP regulations that were changed recently require trustees to set funding and investment strategies. In my view, TAS 300, as it stands, should be part of that.

Before any surplus is paid out, or a decision to buy annuities, enter a superfund or change sponsor is made, a proper risk assessment should be carried out looking carefully at the downside risks of any potential move versus the upside potential. The actuarial calculations to quantify these, which are specified in the Financial Reporting Council’s technical standards, do not necessarily become applied, and there are regulatory gaps. The technical standards require actuaries to provide TAS 300 comparative advice, but it is not clear how, when or whether the trustees must consider them.”
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“But, even today, there is no consistency, no agreed pro forma, no standard template and no detailed implementation guidance, even, from the Financial Reporting Council or other bodies.” 
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“There are seven regulators reporting to three government departments. The Pensions Regulator and the PPF report to the DWP; the FRC and the CMA to the Department for Business and Trade; the PRA and the FCA to the Treasury; and the Institute and Faculty of Actuaries is self-regulating. These regulators need to work together to address this massive pool of assets and national wealth. My amendments are an attempt to help this integration and move it along.”
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“I argue that proper use of the TAS 300 exercise could help the surplus be used for nationalk investments, for improving member benefits and for improving the resources of corporate UK.”

It is estimated that the scheme assets which are currently being transferred to insurers are invested in such a low-risk manner that their aim—this is the Pensions Regulator’s recommended strategy for low dependency to attain a return of gilts plus a half or so—as soon as the insurer takes these assets in, is to re-risk, invest in other assets, and sell the gilt and aim for a return of gilts plus, say, one and a half. Every £1 billion of assets transferred to an insurance company is the equivalent of about £200 million of scheme assets that are not going to members or employers but are transferring offshore.

Stagecoach, which uses this TAS 300 exercise, actually managed to justify changing the sponsoring employer, while enhancing member benefits and paying extra out in surplus. That could be the way of the future if we get away from the current obsession, which states that the no-risk option is annuities and everything else is risky. This is a huge amount of money. These schemes have changed fundamentally. The outlook has changed fundamentally: we are no longer worried about deficits and employer covenants. We should be talking about using this national pool of wealth to boost Britain.”
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“I thank John Hamilton, who is the Stagecoach group pension fund chair of trustees; William McGrath, founder of the C-Suite Pension Strategies; and Henry Tapper, chair of AgeWage, for bringing this to my attention—that, if we can get this working right and if this is inserted into the Bill, we will be able to change how trustees look at their responsibilities to members for the long run. We will be able to start to use these pension assets in a positive way to secure better benefits in future for their members and the nation than the current haphazard application of the standards and all the excellent hard work that the actuaries do, which is driving trustees away from one of the most productive futures for this national pool of wealth.”


Lord Davies of Brixton 

Lord Davies is a Labour peer and actuary.  He has long been prominent with TUC.
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“We should consider ways of strengthening trustee consideration of the way forward, whatever it is. More specifically, an automatic response to go to annuitisation is clearly wrong. If trustees do not consider the other options, they are not acting properly and are not discharging their fiduciary responsibility. The suggestion is that this is happening too often at the moment.”
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“Technical standards, such as what should be in a valuation report, are the responsibility of the Financial Reporting Council, a completely separate body that is not part of the actuarial profession.” 
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“It is also important to understand that the current edition of TAS 300 was issued after extensive consultation last July and came into effect only on 1 November last year.”
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“The issue can be raised with the FRC, and it may well be that it should have been raised more often, because that is really the first port of call if you think that the advice is wrong. It is not to put it into a piece of legislation.”
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I recognise the problem, but I am not convinced that we have been presented with the correct answer.

Lord Fuller
Lord Fuller is a Conservative peer.  He is a businessman and was a leader in local Government in Norfolk.
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“It is perverse that the entire regulatory advisory industry is mandating schemes to go into overly prudent investment products, almost suckering them down so that they have to pay a premium to be bought out, and all the profits go somewhere else. That is not prudence; it is short-changing the members of the schemes and diverting huge amounts of productive capital for the engine of our economy and the private businesses that generate wealth and pay taxes.”

………”this amendment shines a light on it almost for the first time in the Bill. Trustees in as many schemes as I can think of are being misdirected, ostensibly to reduce risks. But they are not reducing risks; they are reducing the sustainability of their schemes and their ability to pay for today’s members”
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We need to strengthen and empower our trustees to play their roles simply and straightforwardly and not as though they are not competent or do not feel confident to resist the so-called advice they are getting from regulators, which are acting in groupthink and not in the scheme’s best interest, or the interests of either members or companies.”


Viscount Younger of Leckie

Viscount Younger is a Conservative peer who was parliamentary Under-Secretary of State for Work and Pensions.

“My Lords, we understand that these amendments are doing something that is really quite straightforward and, in our view, sensible.”
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“Surplus extraction ought to sit within a wider assessment of the scheme’s long-term direction, the securities of members’ benefits and the financial implications for both the scheme and the sponsor. Requiring confirmation that this work has been done would help anchor surplus decisions in that broader context.
This has been a very brief speech from me. We see these amendments as a proportionate safeguard, reinforcing good governance and ensuring that surplus payments are considered alongside—not divorced from—the scheme’s long-term endgame strategy.” 

Baroness Sherlock 
Baroness Sherlock is Parliamentary Under-Secretary of State House for Work and Pensions. 
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“The 2024 funding code is scheme-specific and flexible. Even at significant maturity, schemes can still invest in a significant proportion of return-seeking assets, provided that the risk can be supported.”
……….”after the funding regime code was laid, the FRC consulted on revisions to TAS 300 covering developments; it has now published the revised TAS. These are complex decisions. Regulators need to work together. 
……….”these amendments are not needed because trustees are already required, under the funding and investment regulations, to set a long-term strategy for their scheme and review it at least every three years; that strategy might include a risk transfer arrangement.” 
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TPR would expect trustees to take professional advice from their actuarial and legal advisers; to assess the sponsor covenant impact when considering surplus release; and to take into account relevant factors and disregard irrelevant factors, in line with their duties.”
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“ Alongside the Pensions Regulator, we will work with the FRC to ensure that TAS stays aligned.”

Baroness Altmann 
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“This environment of higher inflation risk, excessive prudence and hoarding of surpluses is damaging pension adequacy. The de-risking overshoot has sucked innovation, energy and impetus out of the pension system and the economy.”

“There is no lobbying for either improving member benefits or giving a lot more money back to employers at the moment. If we were able to get an amendment such as this one into the Bill, so that everybody must consider the range of available options plus innovative strategies, I would hope that the outcome of the Bill would be much better, more productive use—which is the aim of the Government: the Minister, Torsten Bell, has rightly talked about using surpluses in a productive manner.

The FSCS backs annuities. It has no government guarantee. I hope that, on Report, we may come back to the spurious safety of the current recommended future for this enormous amount of assets and find ways in which the Bill might be able to accommodate the need for a mindset change in this connection.”


Comment

Baroness Altmann provided a forceful explanation of how much better pension provision could be with straightforward adjustments in statute leading to material change to mindsets.
Baroness Sherlock drew out that there will be alignment between TPR and FRC regulation to ensure TAS300V2.1 requirements are met.  
The impact on the real value of pensions and on UK growth strategy is material.  Pressing now to ensure the policies can work in practice is of great relevance.


Still to be debated is the following Amendment:

Amendment 219A:  After Clause 119, insert the following new Clause— 

“Alignment of regulations with Technical Actuarial Standards 

The Secretary of State has a duty to ensure that regulations under this Act align with Technical Actuarial Standards issued by Financial Reporting Council, requiring trustees to compare bulk annuity, superfunds and run-on strategies for defined benefit pension schemes before making irreversible decisions about scheme assets.” 

Member's explanatory statement:
This amendment seeks to ensure a joint approach between Government departments and their related regulators including the PRA, FCA and TPR, to help align their respective responsibilities for solvency, consumer interest, member protection and promoting growth. 

House of Lords in Grand Committee may on 14th January consider two Amendments brought by Baroness Altmann which link actuarial work firmly into trustee processes:

The consequence of the Amendments would be to ensure that high quality data is presented to trustees ahead of making decisions on the future of the scheme.  The options to run-on with higher UK productive asset allocations and to ensure there is value to share between stakeholders will be central to their analysis.

There have long been concerns that actuarial work receives insufficient scrutiny.  These Amendments mean all parties will look again at how they are ensuring options are carefully assessed.
The Amendments ensure the public policy intentions of successive Governments are met:

• The Chancellor and DWP Secretary of State wrote to CEOs of TPR and PRA in December 2023 following the Autumn Statement:

“Encouraging alternatives to DB de-risking and buyout, where schemes are well-funded with strong employer covenant – making their assets work harder and enabling continued investment in a broad range of assets, through clearer funding standards in Regulations, a Code of practice and guidance, and making it easier to share investment returns between sponsors and scheme members.”
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• Government Consultation Response: Options for Defined Benefit Schemes: Updated 29 May 2025

“7. The changes to surplus sharing will give trustees of DB pension schemes access to their surplus to benefit both employers and members. Employers could use this funding to invest in their business, increase productivity, boost wages or utilise it for enhanced contributions in their Defined Contribution (DC) schemes. Schemes could also use funding to unlock increased benefits for scheme members, including through providing discretionary benefit increases. The Pensions Regulator (TPR) has acknowledged in its most recent funding statement that schemes are facing increased calls for such increases.”