Recommendations & Conclusions
9 items
2
Recommendation
Third Report - Defined benefit pension …
Acknowledged
There is sufficient evidence of improvement in the funding position of DB schemes to justify a new policy approach. However, it is imperative that there is no return to a world of deficits. Policy changes therefore need careful thought so that they grasp the opportunities offered by improved funding levels, …
Read more
There is sufficient evidence of improvement in the funding position of DB schemes to justify a new policy approach. However, it is imperative that there is no return to a world of deficits. Policy changes therefore need careful thought so that they grasp the opportunities offered by improved funding levels, while being agile enough to respond to future challenges. One of the opportunities is to support DB schemes to remain an active feature of the pensions landscape, helping to deliver adequate retirement incomes. The Government should set out how it plans to promote retirement income adequacy in the future and the role it sees DB schemes, particularly open schemes, playing in this. (Paragraph 22) The scheme funding regime
Show less
Government response AI summary
The government highlights existing measures like the State Pension and automatic enrolment for retirement income adequacy. It states that the second phase of the landmark Pensions Review, announced in July 2024, will explore longer-term changes for security in retirement.
Read full response →
Department for Work and Pensions
3
Conclusion
Third Report - Defined benefit pension …
Acknowledged
Plans for the new DB funding regime were forged in a different era when the vast majority of DB schemes were in deficit and amidst concern that employers were seeking to evade their responsibility to underfunded schemes. Despite significant changes since then—improved funding levels and what these mean for future …
Read more
Plans for the new DB funding regime were forged in a different era when the vast majority of DB schemes were in deficit and amidst concern that employers were seeking to evade their responsibility to underfunded schemes. Despite significant changes since then—improved funding levels and what these mean for future policy—the fundamental principles underpinning the new regime are unchanged: schemes are expected to target a position of low dependency at the point of significant maturity. While we welcome the changes made by DWP and TPR to allow more flexibility in the investment approach, it is unclear what the overall effect will be. Schemes have not yet seen the final version of TPR’s Funding Code. It is unfortunate that Parliament has been asked to vote on the Regulations before this was published and stakeholders have had the opportunity to evaluate and comment on the full picture. In future, DWP should commit to ensuring that Parliament has the material details it needs to make an informed judgement on the legislation it is being asked to vote on.
Show less
Government response AI summary
The government supports the principle of providing Parliament with necessary details for informed decisions and remains committed to positive engagement. It notes the new DB funding code came into effect in September 2024 and will be reviewed within the next five years.
Read full response →
Department for Work and Pensions
7
Conclusion
Third Report - Defined benefit pension …
Acknowledged
We note the further consultation launched in February on options to support DB schemes. Given that the aim of the funding regime is for schemes to be well-funded when they are significantly mature, some will be in surplus. We agree that if running a scheme on is to be an …
Read more
We note the further consultation launched in February on options to support DB schemes. Given that the aim of the funding regime is for schemes to be well-funded when they are significantly mature, some will be in surplus. We agree that if running a scheme on is to be an attractive option, it is important to explore ways in which such surplus could be used to the benefit of the sponsoring employer and scheme members, provided member benefits are protected. However, recent experience has demonstrated the volatility of scheme funding levels and we heard the ‘jury is out’ on the extent funding gains have been ‘locked in’. DWP is consulting on what a ‘safe’ funding level threshold would be. However, it acknowledges that other factors are relevant, such as investment risk and the strength of the sponsoring employer. These are among the issues on which the trustees would need to take a judgement, before deciding whether surplus extraction is ‘safe’ in line with their fiduciary duties, so strong governance will also be essential. DWP should conduct an assessment of the regulatory and governance framework that would be needed to ensure member benefits are safe and take steps to mitigate the risks before proceeding.
Show less
Government response AI summary
The government states that DWP is actively assessing the regulatory and governance framework and will continue to engage with TPR and stakeholders as it develops policy on surplus flexibilities. On January 28, 2025, it committed to giving trustees and sponsoring employers flexibility to use DB …
Read full response →
Department for Work and Pensions
12
Conclusion
Third Report - Defined benefit pension …
Acknowledged
The use of sole trustees is increasing. While they can bring knowledge and expertise, there is the potential for conflicts of interest. We are concerned that employers often have a unilateral power to appoint sole trustees in the place of the existing trustee board, including member nominated trustees. DWP should …
Read more
The use of sole trustees is increasing. While they can bring knowledge and expertise, there is the potential for conflicts of interest. We are concerned that employers often have a unilateral power to appoint sole trustees in the place of the existing trustee board, including member nominated trustees. DWP should introduce measures to improve the accountability of sole trustees and to enable scheme members to be involved in their appointment.
Show less
Government response AI summary
The government acknowledged concerns regarding sole trustees and existing safeguards, committing to consult on what, if any, further action might be needed in the future, rather than introducing specific measures or member involvement now.
Read full response →
Department for Work and Pensions
14
Recommendation
Third Report - Defined benefit pension …
Acknowledged
Member-nominated trustees play a vital role in representing the interests of scheme members and providing a link to the workforce. As part of its planned engagement with stakeholders, DWP should explore ways to support lay trustees with the time and costs needed to become accredited and report the results. It …
Read more
Member-nominated trustees play a vital role in representing the interests of scheme members and providing a link to the workforce. As part of its planned engagement with stakeholders, DWP should explore ways to support lay trustees with the time and costs needed to become accredited and report the results. It should set out plans for ensuring every trustee board has at least one accredited member, lay or professional and a timetable for achieving that. (Paragraph 109) Defined benefit pension schemes 57
Show less
Government response AI summary
The government committed to planning a consultation later this year to consider how TPR and DWP could provide additional support for lay trustees, but did not set out plans for ensuring every trustee board has an accredited member or a timetable.
Read full response →
Department for Work and Pensions
17
Recommendation
Third Report - Defined benefit pension …
Acknowledged
There may be a good case for a public consolidator. However, there are complex issues to address, particularly in relation to who would underwrite the risk, the impact on member benefits and how its introduction would be justified. In response to this report, the Government should explain whether the core …
Read more
There may be a good case for a public consolidator. However, there are complex issues to address, particularly in relation to who would underwrite the risk, the impact on member benefits and how its introduction would be justified. In response to this report, the Government should explain whether the core aim of a public consolidator is to rescue stressed schemes likely to enter the PPF in any case, or is it for small schemes who may face challenges accessing the buy-out market.
Show less
Government response AI summary
The government stated it is exploring whether a small, focused Government Consolidator could be an option for schemes less attractive to commercial providers, and will respond to a consultation on this in the spring, but did not definitively explain its core aim.
Read full response →
Department for Work and Pensions
19
Recommendation
Third Report - Defined benefit pension …
Acknowledged
The Government should find an early legislative opportunity to give the PPF more flexibility in how it sets the levy, allowing it to reduce it to zero and then increase it again if necessary.
Government response AI summary
The government announced it will consider giving the Board of the PPF greater flexibility to adjust the annual pension protection levy, aiming to reduce costs for levy payers, but did not commit to specific legislative action or a timeline.
Read full response →
Department for Work and Pensions
20
Conclusion
Third Report - Defined benefit pension …
Acknowledged
We applaud the fact that the PPF is now reasonably confident that it has the funds it needs to meet potential claims on it. This is a significant achievement. There is now an opportunity to consider how the £12 billion in PPF reserves can be used to the benefit of …
Read more
We applaud the fact that the PPF is now reasonably confident that it has the funds it needs to meet potential claims on it. This is a significant achievement. There is now an opportunity to consider how the £12 billion in PPF reserves can be used to the benefit of PPF levy payers and scheme members. For scheme members, the priority is indexation on pre-1997 rights. DWP should bring forward its promised consultation on levy changes and PPF compensation levels without delay.
Show less
Government response AI summary
The government noted the PPF's reduced levy estimate and new rule provision for a zero levy pending legislative changes, and committed to considering and reflecting on feedback regarding compensation levels and pre-97 indexation, but did not commit to bringing forward the requested consultation.
Read full response →
Department for Work and Pensions
21
Conclusion
Third Report - Defined benefit pension …
Acknowledged
Non-indexation of pre-1997 benefits has had a significant impact on PPF members and disproportionately on older members and women, reducing the value of their compensation in real terms. Given the £12 billion in PPF reserves, the potential impact on levy payers is no justification for continuing this policy. We welcome …
Read more
Non-indexation of pre-1997 benefits has had a significant impact on PPF members and disproportionately on older members and women, reducing the value of their compensation in real terms. Given the £12 billion in PPF reserves, the potential impact on levy payers is no justification for continuing this policy. We welcome the fact that the Government will be consulting on levy changes and PPF compensation levels. It should legislate to provide indexation on compensation in respect of pre-1997 rights where scheme rules provided for that. It should work with the PPF to consider 58 Defined benefit pension schemes other changes to compensation—such as raising the cap on indexation of post-1997 benefits above 2.5%—as part of its forthcoming consultation on levy changes and PPF compensation levels.
Show less
Government response AI summary
The government acknowledges the issues raised by PPF and FAS members regarding pre-1997 indexation, states it is taking advice on options, and will continue to work with the PPF to balance stakeholder interests.
Read full response →
Department for Work and Pensions