The Society of Pension Professionals (SPP) has published a wide-ranging paper on the issue of surplus release from DB pension schemes.
“DB Surplus Release: risks, rewards, & responsibilities” explores what constitutes a surplus, when releasing surplus may and may not be appropriate, the benefits and risks for members and employers, investment and governance issues, and the wider consequences for the DB pensions landscape.
The paper outlines why the new flexibilities to release surplus mean that Trustees and employers should review the right long-term path for their scheme and its beneficiaries. While many schemes may choose not to release surplus, by reaffirming their strategy they can pursue existing plans in greater confidence and with a lower risk of subsequent challenge.
In setting out the risks, rewards and benefits of surplus release in detail, issues highlighted include:
- contrary to original Government suggestions of up to £160 billion of pension scheme surpluses being released, the DWP impact assessment now suggests a much lower figure of £11 billion.
- surplus release is not without risks and will not be suitable for every pension scheme
- major policy changes also bring the risk of unintended consequences
- it’s likely that pension scheme members will be expected to share in the benefits of any surplus release – one-off lump sums would prove a useful and likely very popular option but are not (currently) permitted under the pensions tax regime
- employers can benefit from surplus release in many ways, some of which are already possible e.g. capital expenditure or other investment
Alex Beecraft, a member of the SPP’s Covenant Committee and Chair of the SPP’s Working Group on surplus release, said:
“While the factors that drive decisions on surplus release will vary from scheme to scheme, the core themes are simply those that Trustees, employers and advisers have considered over the last decade to reduce risks for members. This should provide confidence that in the right situations the associated risks can be managed, monitored, and mitigated to improve outcomes for all stakeholders.
“This SPP paper serves as a useful tool to quickly, yet comprehensively, identify the risks, rewards and responsibilities associated with surplus release. It should prove useful to a wide range of industry professionals, policymakers and other stakeholders, and support the DB industry’s transition from a culture of wealth preservation to one of wealth creation.”
