Thanks to Willis Towers Watson for an excellent seminar yesterday. I am now a lot clearer in my head about the “DB surplus opportunity” though I’m not clear why (as the slide intimates) schemes that could afford buy-out shouldn’t choose bolder options!
I guess it’s my job to push the boundaries but is there not an opportunity for well-funded pension schemes to either consolidate and to offer members some of the upside potential offered by consolidators? Are trustees condemned to managing legacy through run-off? Or are there opportunities going a begging?
Could it be possible to seed a new occupational scheme with the surplus -either on a DC or CDC basis within an existing trust, using the surplus and leveraging the purchasing power of the DB scheme to create new vibrancy in a corporate pension strategy?
Could the commercial consolidator, or the PPF – be a means to offer upside to members within the new regulatory framework?
Could a super-levy be paid to the PPF to provide full protection on member benefits incentivising the trustees to be more ambitious in their asset and liability strategy.
Could DB schemes offer scheme pensions for those with DC pots either under scheme rules or through a decumulation CDC plan within the existing trust?
Returning surplus whence it came
I appreciate that the productivity of UK companies has been impaired by the cash-calls on their pension schemes and I can see strong arguments for surpluses to be returned from where they came – to the sponsoring employer.
These monies have been incentivised by the tax-payer at contribution and monies within the fund have grown largely tax-free, individuals would expect to pay tax on withdrawal and so should sponsors. This taxation should not be penal, but there should be clear fiscal advantage to sponsors not to withdraw capital committed.
If we are to invest in productive capital, it should be with a view of common good and that should include the good of employers who sponsor DB plans.
The best means for this to happen is through the pension scheme itself to be productive. Which is what the Pensions Regulator is now looking for DB plans to do. Nausicaa Delfas, TPR’s CEO has published on this blog that intends the DB funding code to be relaxed to enable DB pensions to be more ambitious in their investment strategy and to embrace risk rather than avoid it.
The surplus within pension schemes has to be considered as offering more than the opportunity to buy-out. Members should be able to participate in any decision, not just the sponsor and the trustees.
And I believe that many trustees will declare a moratorium on buy-out, pending the arrival of alternative options, including the development of CDC, pension superfunds and developments of trustee investment plans that give access to master trust’s investment platforms – within own scheme rules (something that is being trialled in the AVC market).
A new opportunity for hybrid schemes and holistic consultancy.
I am not keen on the idea – in a consolidating market – of occupational schemes being started afresh within DB plans. This seems an unnecessary duplication of effort and a waste of money.
We have only begun to explore the capacity of progressive funders of master trusts to use the functionality and investment platforms they have built for their trustees, for the wider market.
The scope for innovation is immense and I hope that great consultancies , such as WTW, will consider these opportunities , not as part of a limiting DC remit, but integrating the DC and DB practices to one aim.
This is furthering the Government’s objective of narrowing the gap between DB and DC and promoting the idea or workplace pensions as an equal opportunity for differing cohorts of employees.