Source · Select Committees · Work and Pensions Committee
Recommendation 7
7
Acknowledged
Paragraph: 70
Conduct an assessment of the regulatory framework for safe member benefits before surplus extraction.
Conclusion
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.
Government Response 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 surplus.
Paragraph Reference:
70
Government Response
Acknowledged
HM Government
Acknowledged
The security of DB member benefits is paramount, and we will ensure that we prioritise that when making any decisions within the DB pensions landscape. DWP is actively assessing the regulatory and governance framework as it develops policy and considers future legislative change. On 28 January 2025, this Government committed to giving pension trustees and sponsoring employers the flexibility to use DB surplus to increase the productivity of their businesses–to boost wages and drive growth or unlock more money for pension scheme members. This follows the ‘Options for Defined Benefit schemes’8 consultation, which has further helped us understand how various organisations and DB schemes operate within the existing regulatory and governance framework in practice. Protecting member benefits is crucial. We consulted on a range of potential safeguards, including on funding thresholds for surplus extraction and the legal means by which a statutory override could take effect, to ensure that additional flexibilities for trustees do not threaten member security. We have carefully considered the valuable feedback received. As we develop the policy relating to surplus flexibilities, the Department will continue to actively engage with TPR and other key stakeholders within the DB pensions landscape to ensure that any changes to the regulatory and governance framework are consistent with the core responsibility to secure DB member benefits.