The government has this morning published the response to its consultation on proposals to remove barriers to the release of surplus from defined benefit (DB) pension schemes. The policy driver behind this is to boost economic growth by releasing resources back to businesses and to scheme members. There are few surprises in today’s announcement and we await more detail in the upcoming Pension Schemes Bill, in subsequent regulations and in TPR guidance.
Two keys to the government’s plans to unlock surplus are the removal of legal constraints on the power to repay surplus (both in legislation and scheme rules) and the lowering of the funding threshold at which it can be extracted. What is clear is that any repayment of surplus will be at the discretion of the trustees and be subject to actuarial certification.
There will be a statutory resolution power for trustees to modify their scheme rules to provide for surplus sharing where they do not already do so. In addition, the legal restriction preventing some schemes from releasing surplus if they do not have a ‘section 251 resolution’ in place is to be repealed.
It is proposed that the level at which trustees can decide to extract surplus should be changed from the current buyout threshold to one set at full funding on the low dependency funding basis (subject to actuarial certification). There will be further consultation on this in due course. The taxation applicable to surplus paid to employers will remain at 25 per cent, with further consideration of the wider tax regime for surplus extraction to come.
The consultation also included proposals for a public consolidator for DB schemes which are unable to access buyout in the insurance market or a commercial consolidator. The government is continuing to explore this in the context of some robust responses.
On a busy day for the pensions industry, the final report of the Pensions Investment Review has also been published, along with government responses on DC scale and investment and LGPS investment and governance.
.jpg)
