This appears in Mary McDougall’s timeline for her recent posting, I guess it was two months ago that this snippet appeared and I missed it but it seems rather more important since the Aberdeen/Stagecoach Pension deal.
There is a future for private employer pensions (CDC and DC defaults), there is a past that matters (DB) and there is the British economy that the Treasury hopes is increasingly driven by our pensions (taxation on spending and IHT and funding).
Mary’s point, which sounds like a leak, is that more than £2.2bn from the £160bn in surplus should return to the Treasury. If we work on it being 25% of the surplus drawn down, it suggests that only £2.2bn will be coming back into the economy as surplus extraction. Only £444m will be paid to the Treasury, a paltry amount over 5 years.
What happens to the remaining £157.8bn (ONS guesstimates)?
It strikes me that the drain of nearly one hundred and sixty billion pounds of pension money from our past is expected to go into annuities and to what annuities buy to back up promises. This is a matter for the PRA to oversee and the PRA is part of the Bank of England and works closely with the Treasury in everything.
I am not sure, in the current geopolitical climate, whether our insurance companies should be being bought out by American private equity whose money is increasingly sitting in funded reinsurance contracts on the other side of the pond. This does not seem good economics or good politics and I wonder if things are changing in the Government as politics is changing towards America.
I would like to think that we are going in 2026 onwards to be more protective of our surpluses and where they go. I would like to see our DB pension schemes run on where they can or do innovative deals as Stagecoach has done. I would like to see surplus flowing back to sponsors so they can do the things that companies do to grow. This is a time to invest in new technologies especially. This is a time to invest in staff’s salaries and their deferred salary (pensions) and it is time for money invested by the Treasury in pensions to be returned to HMRC.
There is much good that can be done for Britain with the £160bn of surplus in our DB schemes and I hope that our Pensions Minister is telling our Chancellor and the BOE and the PRA that. Because it is not good enough for Britain’s retirement future to be dominated by insurers and especially American insurers.
We are planning for pensions to fail and that is not a way for Britain to grow,
“We are planning for pensions to fail and that is not a way for Britain to grow”
Totally agree with you.
Employers must be encouraged to consider how their existing pension assets and future contributions can be used best to help their business survive and grow into the future. That is unlikely to be achieved by purchasing a third party commercial product that provides no return to the employer.
Similarly will employers perceive the benefit of paying contributions into CDC rather then DC. Some might wish to use it as a vehicle to get out of paying contractually committed DC contributions (say on a matching contribution salary sacrifice arrangement).
On the tax revenue issue:
Many employers (as well as individuals) set an objective of minimising their tax charges.
In terms of pension scheme surpluses, if employers utilise the surplus to reduce their future pension contributions, then the Exchequer still gains as the tax paid on business profits is increased by the reduction in the tax relief paid on the future cash contributions. Needless to say the Government would like employers pay tax upfront when employers move surplus out of the pension scheme to pay into a third party DC (or CDC) arrangement.