From April 2027, well-funded defined benefit pension schemes will be permitted to pay surplus funds directly to scheme members over the normal minimum pension age where permitted by the scheme rules. This is a welcome measure that has been called for by the pensions industry.

I am pleased to see the Government taking a wise position on the distribution of the pension surpluses that proliferate up and down the company. Here is C-Suite’s William McGrath

The budget is to making discretionary payments on one off bases to pensioners tax efficient. The definition of Authorised Payments will change from the Finance Act 2004. Unauthorised payments under it could bring a 40% income tax charge.

Our Discretionary Step Ups were a work around. This change is really useful. It means that there is really no excuse for stakeholders not to come up with a way to share value. Members should get stuck in.

The Bell has rung and our rubber tree image is on the money.

This obscure allusion to rubber trees can be found in previous work of C-Suite which likens the slow boat to Bermuda – (the export of bulk-purchased annuities) to lazy lying under palm trees (palming off members who have rights to more from DB pensions in surplus than the bare minimum, . McGrath wants palm trees to be replace by rubber trees that deliver members with “value shared”.

A leading consulting actuary supports William McGrath

Agree this is a meaningful change, that we’ve been lobbying for (and others, eg SPP).

To illustrate it, before this if you decided you had sufficient surplus to release to members at say £1000 each (on average), you had to give a say £50 increase to their pension now, which your actuary tells you costs £1000.  So as the sponsor, you’re accepting a £1000 P&L hit for providing more benefit (maybe slightly less as valued on a different basis), to give a member £50 more now.

Members will generally, I expect, massively undervalue the fact these £50s each year are “worth” £1000 today.  Plus the sponsor is now carrying the risk that stream of £50 actually ends up costing you much more than £1000.  Plus it delays HMT tax take on member increased earnings.

Whereas now, you could decide to give the member £1000 in full, accepting the £1000 P&L charge, knowing that A) members will value it B) that’s all it every costs you.

Or, perhaps more likely, you give members £250 or £500 or something else, that fits within your P&L budget and keeps some powder dry to smooth giving members a relatively consistent amounts in future years too.

This is something many large schemes I’ve spoken to would find it much easier to convince their sponsor to share value.  Good stuff and glad Govt has listened.

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I have a acronym for the spring of 2027 -CDC

From the summer of 2026 , CDC schemes can start getting authorised by the TPR, by the end of 2026 they will be authorised (or application dismissed). For DB schemes returning surplus DB benefits to staff, what better means to allocate those payments but to better payments to staff who have been labouring under poor outcome DC pensions.

Spending pension money on better pensions for a new generation of employees who may not have benefited from DB is a thought worth having!

I leave readers who have read this far with McGrath’s call for DB pension to soldier on , proving value for a time to come.

The McGrath mantra follows as an ADDENDUM

Scrutiny: Incentives: Members: What is needed to bring better pensions and economic growth:

§  Scrutinise actuarial work

• • Long recognised as needed, the lack of scrutiny made the excesses of LDI and Pension Risk Transfer possible.  Even the threat of scrutiny will transform standards in practice.

§  Incentives to change fiduciary duty assessments

• • Government arranged PPF and FSCS safety nets and TPR investment return targets to be adjusted to favour higher Pro UK allocation of assets.  Long term value sharing agreements given tax incentives.

§  Members be activists

• • Members press hard for discretionary value sharing between sponsors and past and present employees.  Vote of membership on proposed bulk transfers.

C-Suite Pension Strategies has tirelessly advocated run-on as a “credible alternative” to buyout since 2018.  When schemes are treated like a rubber tree members can tap into upside over the long term.  The standard relentless life insurer journey to buyout palms off members and is sub-optimal.  Cut in members to a package benefitting all stakeholders.  Members: Call for a vote before a bulk transfer.