DB options consultation response – Government pushes ahead with easier surplus access

The Government had confirmed earlier this year that it intended to legislate to make it easier to utilise surpluses in DB pension schemes. The response today provides more detail on how their thinking has evolved and the measures they intend to take forward. 

It is positive to see that they have listened to industry feedback, committing to introducing the ability to override restrictive rules, basing surplus extraction around low-dependency funding targets and looking for a collaborative approach to be taken by trustees and sponsors. The introduction of a 100% of benefit PPF underpin option, which didn’t have wide industry support, has been dropped while the launch of a public DB consolidator has been put on the back-burner.

These proposals mark a significant shift in DB scheme regulation. For two decades, the focus has prioritised securing existing accrued benefits above all else, including future benefit accruals and discretionary increases. The industry is keen to embrace these changes and the opportunity to support growth and greater innovation. 

Trustees have generally been positive but have consistently raised the importance of clear guidance being provided to support their decision making on using any surplus.  So far, The Pensions Regulator appears keen to engage with explicit reference in its recent Annual Funding Statement that it views schemes having a surplus policy in place as best practice.