DB Pension Schemes: Major, Immediate Public Policy Wins

DB pension schemes have available now the capability to boost economic growth and improve pension provision.  Straightforward and effective initiatives can bring major benefits starting in 2025.

Objective:

• £1.2 trillion in investments held in DB scheme to have higher UK productive asset and sustained UK gilt allocations under stable investment strategies.  
• Schemes to run-on longer term and where practical recycle surplus funds into better pension provision for past and present employees and into higher UK capex.  

Steps needed:

Focussed, Impactful Regulations:
Risk-Benefit Analyses of financial best interests of beneficiaries and sponsors are a clear requirement on DB schemes and their advisors.  N.B. TAS300V2.1 and wider regulatory frameworks are sound. 

​With greater scrutiny by Financial Reporting Council (to be ARGA) and DWP of the Risk-Benefit Analyses, sector behaviours will reset when they know the maths they are using can be scrutinised.  

Concrete Growth Proposals:
Government can underpin DB scheme Risk-Benefit Analyses.  Where a scheme holds a minimum %’s of assets in designated UK productive and UK gilt categories Government incentives are provided:

• Improved (but not total) PPF cover should the sponsor fail.  End of “haircuts”
• Surpluses of up to an annual maximum % of assets can be used from DB schemes (funded to sustainable low dependency) to pay DC contributions, improved pension payments and fund scheme running costs and UK capex.  TPR to raise accepted level of returns for mature schemes.

Key Impacts:

• Bounce back from excessive derisking will be achieved to benefit all stakeholders.  Benefits of investment will be seen in economic activity.    
• New balance of buyers and sellers in UK capital markets create more liquid, vibrant markets.  
• Mindset change achieved in pension sector led by trustees rethinking their fiduciary duty to members to look for better outcomes.  
• Higher tax take for HMT.  N.B. Tax incentives provided have limited or no costs to HMT.  PPF funding position is good and is funded by members.  Little income from tax on surplus repayments at present.  Higher pension payments to members will be taxable.  Reduced tax allowable cash contributions to schemes.

Targets:

• Add 10% to UK productive assets => £120 billion
• Add 10% to UK pensions on a discretionary basis => £5 billion
• Add over £5 billion to DC contributions and UK capex

C-Suite Pension Strategies: The Papers  -  Click the images to read