This slide from a PWC seminar later in the day – explaining what happened in the Stagecoach Penson and Aberdeen deal late last year.

What a way we have come from early in 2025 when I last heard John Hamilton speak.

John Hamilton’s talk to the M&G Investment Conference Trustees brought an intensity to this event that overcame the usual self-interest. If you want to draw down on the presentation, John has agreed to share the slides which I have set out below as a set and a link to a PDF you can file and share.

You can download the presentation here

I cannot report authored  comments from the audience but I can offer the slides and what I took from each.

There are two questions that needed to be answered.

Firstly – why have DB schemes been de-risked and, secondly,  for whom.

There has been an assumption that the PPF needed to be protected from failure of sponsor’s covenant.

The member was to some extent being protected from falling into the PPF but more substantially, the PPF was protected from schemes falling into it.  The PPF is now hugely in surplus itself and there are relatively few schemes likely to join a club of pension schemes failed by the employers who sponsored them.

There is now £240bn of low risk  surplus and whose is it? Is it the employer’s , is it the Government’s (a recompense for its regulation?) or does it belong to the members?

Hamilton was clear that for trustees the answer has to be those for whom pensions were intended.

That the promise has moved on since the 1993 Goode report to paying pensions that keep pace with prices, the surpluses should pay the increases that many accruing pensions pre-1997 have so far not got.

It should be noted (and was later in the day) that staff who did not join the DB pensions have neither rights to a defined pension or increases.

Small schemes need to consolidate to pay the surpluses the PPF’s purple book indicates they have,  to members. John Hamilton was adamant that if there is a choice of who gets paid the surplus in smaller schemes, the choice is between insurer (in buy-out) and members (continuing).

There is no value in surpluses sitting dormant without growth. They need to be invested for growth but this chart shows that schemes (74% of whom have surplus) are more heavily than ever in defensive debt. That surpluses should sit dormant is , according to Hamilton, a waste. Better surplus be in the hands of members than uninvested in the scheme

It might also be noted, though it wasn’t in this meeting that the amount of money going into growth stocks from DC (and in future CDC) ; this is exactly the opposite of what has happened in DB schemes whose growth assets have slumped in year when Government has needed growth to meet its increasing spending.

Pensions need to be invested in growth, pension schemes need to re-risk for if assets transfer to insurance companies they will be re-risked by the insurer. The Government needs growing revenues from pensions, that means higher taxation on pensions paid and growth to pay more pensions. It is hard to see growth to Government from growth in insurance company dividends, not least because so many of these dividends are now paid abroad.

The choices for Trustees going forward need to be laid out by actuaries using TAS 300 reviews that explain who gets paid by buy-out and by running on.

TAS 300 needs to balance security of each option with the opportunity of getting or the  opportunity cost of not getting surpluses into the hands of members.

The choices that the trustees need to make need to include all of the above and these need analysis. The boxes in bold outlined boxes are those Hamilton considered important in the trustee’s decision.

Has the scheme the capacity to carry out its duties and the assets to go for growth?

At a less conservative and more aggressive target for returns of 1.25% over investment , the scheme can afford to take surplus out to supplement pensions paid while paying into the scheme at below the recommended contribution level based on low-deficiency contributions, there is a strong case to carry on – more paid out and and less paid into the scheme than a buy-out would allow for.

It is of course vital to the success of the deal that Stagecoach pension and Aberdeen that growth over gilt returns is higher.

Hamilton concluded that

“the industry is grasping the nettle about the real need and the opportunity for (managed) growth across the £1.2trn of private sector DB schemes and across pensions more generally; all the players want to be involved with that, and especially since the Stagecoach / Aberdeen transaction the discussions are now about who should the surplus go to and in particular how much to the members from THEIR pension scheme”.

Well done M&G for the debate which has got some apt accolades