In case the Pension Security Alliance (aka Just and PIC insurers and John Ralfe) are still worrying you, here is the proposal from the Government of the Pension Schemes Bill , as Mary McDougall explains out in her article.
Only 5 per cent of an estimated £160bn of excess assets held in defined benefit pension schemes will be extracted despite a change in rules to make releasing surpluses easier, the government has predicted.
The Department for Work and Pensions estimated in an impact assessment that “around £8.4bn” of surplus after tax would be returned from schemes to workers and companies over 10 years as a result of new rules tabled in this week’s pensions bill.
The reason that pension schemes have surpluses is because they contributed so much in “deficit” payments in the years of austerity when regulatory measures depressed seeming funding levels. Now these contributions are visible as surplus thought much of them were blown in September 2022. Giving excessive contributions back to schemes who have managed investments well is what the Government wants to do.
The Government’s idea is to allow money to be withdrawn from a level know as “low dependency solvency” rather than buy-out (see below). This would increase today the amount of money available to employers from DB pensions from £97bn to £160bn.
I checked the Impact Assessment , this is the Government’s most important analysis of its proposals as its done by their Treasury . The information gleaned by the FT starts around page 375 and the key table from which the £8.4bn is extracted is on page 387.
The total amount taken from schemes will be £11bn, this reduces to £8.4bn after direct and indirect costs of surplus are taken out.
It can be done, it won’t be cheap or easy,
The Government and its Regulator are not going to do it in a hurry, unless pressure is put on them by those who understand – speaking out. Here’s one!
Steve Hodder, partner at consultancy LCP, said “£8.4bn is low and disappointing”
Under the current rules, a surplus is only accessible if it exceeds the level needed for a business to sell its pension scheme to an insurer, known as a buyout. Rules laid out in the bill will lower this threshold to one of “low dependency”, making an estimated £160bn of surplus assets accessible across all schemes compared with £68bn on the current buyout basis. The rules are not due to be in place until the end of 2027, according to the Roadmap produced by the Government.
Those pension schemes that did not introduce a resolution under section 51 of the Pension Act will be able to unlock their scheme.
But these changes will only be available once we reach the end of the road (see below). The end of the road is 2028.
Employers can have their money back but not much of it and not for some time!
Too long a wait, say the PLSA
Mary McDougall in the FT has spoken to others..
“[The government] could be more aggressive . . . if they got it through in 2026, that could make a bigger difference,” said Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Association trade group, noting that the impact would decline over time as more schemes move to buyout.
Here is the timetable produced by the DWP
It is difficult to understand , both for Superfunds (which now seem to include capital backed journey plans and merged funds) and for super-over funded DB plans, why there needs to be a 3 year wait.
There are plenty of instances of pension rules being changed much more quickly and it is time that the Pensions Regulator’s “surplus guidance” and “regulations” be speeded up or done away with.
Instead, we look like the Government has designed a system that will please the insurers who will do very nicely out of these surpluses. So will the consultants who support “de-risking” through lock down in bulk purchase annuities.
Many employers will not wait and will buy-out. The final word of the FT article is with PWC
“There’s a reality that you are still in a place where most trustees are on the path to getting schemes to insurance companies,” said Gareth Henty, head of UK pensions at consultancy PwC.
If the same ongoing buy-out is what comes out of the Pension Schemes Bill, it will – as Steve Hodder says – be disappointing.