Mary McDougall has written an amusing and caustic piece asking whether our Prime Minister has quite got to the bottom of what this blog calls “ephemeral“. The surpluses that the Prime Minister reckons at £170bn could be twice that by adjusting the “gilts +” rating that allows us to measure assets. If TPR accepts it has got its sums wrong and the ONS have got theirs right, then the surplus is rather more ephemeral than numbers 10 and 11 Downing Street reckon it.
As we point out “surpluses are ephemeral , beating targets should be fundamental.
Mary McDougall correctly points out that the fiduciary duty on trustees does not mean all the money excess to the need to pay members is to be paid to DB members. Many examples stretching back to a 1984 Mineworker Pension debate are discussed. Lawyers from legal firms such as Freshfields deliver their opinions and Linklaters are hauled in to deliver their opinions and we end up realising that Starmer is up against legal technicalities that will stop us doing anything (if we can’t break loose).
Of course there is another way to look at pensions and that is to consider them as a means of long-term growth that ride out short term problems with determined strategy. This is what Keating means by “targets being fundamental”. I hope that the readers of this blog are able to get their points across and are not drowned out by legal technicalities. I know the senior people of some of the pensions in lockdown and some are very proud of themselves, some of them ashamed of mistakes of their scheme (especially in the latter years of LDI).
Keating comments on this blog
The Prime Minister’s £170bn of surplus appears to be based on TPR’s estimate of schemes in surplus on a low dependency basis – £162 billion. Our estimate of this figure is less than half that of TPR, £71 billion. According to TPR, schemes overall have a surplus of £137 billion, which we believe is actually a deficit of £21 billion.
The ones that are in lockdown and proud are pleased they are on their way to buy-out, those that are ashamed recognise that their opportunity to benefit members, sponsors and the country was lost in the first 22 years of this century when we gave up investing and embraced de-risking.
I do not think that handing over your DB pension scheme to an insurer is anything to be proud whether more than £1bn or less than £10m. I have made this point earlier this week. Managing fiduciary duty means taking a forward look.
This week Lloyds Banking Group restated its surplus downwards. The provisional report on which TPR make their estimates of surplus are not always accurate. Take the case of Lloyds Banking Group.
LBG’s results also revealed the bank had seen a fall of around 17% in its defined benefit (DB) pension scheme surpluses.
The bank sponsors some of the UK’s largest pension schemes – including the Lloyds Bank Pension Scheme No. 1, the Lloyds Bank Pension Scheme No. 2 and the HBOS Final Salary Pension Scheme – with combined pension assets totalling some £30.1bn at 31 December last year.
LBG said it had seen its net surplus position fall from £3.5bn at the end of 2023 to £2.9bn at the end of last year – a fall it attributed to negative market impacts, with scheme assets falling from £33.7bn at 31 December 2023 to £30.1bn at the end of last year, while liabilities fell more slowly, from £30.2bn to £27.1bn, over the same period.
It said that, following completion of the triennial valuation of its main DB pension schemes as at 31 December 2022, there would be no further deficit contributions for the current triennial period (to 31 December 2025).
Surpluses are ephemeral, what is needed is to beat funding targets over time.
I hope that when they come to review DB funding, this Government will call on some of the people who comment and blog on here for fundamental advice on how to go about managing pension schemes. Those who’ve managed pensions a lifetime make better policy advisers than pension lawyers – with due respect to Starmer’s profession.