Source · Select Committees · Work and Pensions Committee
Recommendation 6
6
Accepted
Paragraph: 59
Monitor trends in pension scheme buy-out demand and alternatives, working with financial regulators.
Conclusion
Many trustees and scheme sponsors will want to enter an arrangement to buy-out scheme benefits with an insurer and we welcome the security for scheme members this provides. However, not all will be able to do so, at least in the short-term. Well-funded schemes should also be supported to run on as there are potential advantages for scheme members, sponsoring employers and the economy. As part of its work to take account of financial stability considerations, TPR should monitor trends in demand for buy-out and its alternatives and work with financial regulators to understand the implications.
Government Response Summary
The government states that TPR already monitors trends in demand for buy-out and its alternatives through market engagement and modelling. TPR is actively working with the Prudential Regulation Authority (PRA) to manage systemic risk by ensuring trustee preparedness and modelling future demand.
Paragraph Reference:
59
Government Response
Accepted
HM Government
Accepted
As a result of the positive funding position for most DB schemes many more schemes are able to consider how they can meet their obligations to members and reduce or transfer their future liabilities to insurers, including through buy-out. TPR’s research has shown that over 62% of schemes have a long-term objective to buy out.6 This objective has been stable for several years and is likely to remain a key objective for many schemes. In 2024, 27% of schemes had a long-term objective to run on with low dependency on the employer and 7% of schemes had a long-term objective to run on and generate a surplus.7 We also appreciate that the DB pensions landscape is dynamic and that trends need to be monitored continuously to ensure policy is informed and effective. Through its market engagement, TPR has visibility of current and future buy-out trends enabling it to model how the DB market is likely to develop. While the insurance sector is highly regulated, TPR is committed to working 5 https://www.gov.uk/government/consultations/options-for-defined-benefit-schemes/ options-for-defined-benefit-schemes 6 https://www.thepensionsregulator.gov.uk/-/media/thepensionsregulator/files/import/ pdf/defined-benefit-schemes-survey-research-report-2024.ashx 7 https://www.thepensionsregulator.gov.uk/-/media/thepensionsregulator/files/import/ pdf/defined-benefit-schemes-survey-research-report-2024.ashx with partners across regulators and Government to manage any systemic risk that arises from pension schemes transitioning to the insurance market. TPR is keeping this risk under review, and is working with the Prudential Regulation Authority (PRA) to support an orderly transition by: • ensuring that trustees are prepared for and making good decisions on buy-out; and • modelling the likely future annual demand for buy-out and the impact this may have for different asset classes, in particular gilts. We are confident that TPR is well-placed, working alongside the PRA, to continue to monitor trends in the buy-out market and the alternatives available to DB schemes. DWP will continue to work in partnership with TPR to monitor and anticipate changes in the DB pensions landscape.