As the Government this month confirmed plans for new freedoms to safely release surplus funding to unlock investments and benefit savers, the Society for Pension Professionals (SPP) held an event for over 300 pension professionals on the practicalities of distributing surplus.
Panellists considered a range of issues from insurer requirements and the role of TPR to decision-making for both sponsors and trustees.
Participants were asked to indicate how many of the schemes that they are advising on a potential transaction might expect a material surplus (5% or more).
Nearly half of respondents (45%) chose “about half”, nearly a third (32%) chose “more than half”, and nearly a quarter (22%) chose “a minority”, with just 1% choosing “none”.
Participants were also asked what the most important factor is for trustees to consider if they have the power to distribute surplus. The results of which were:
· Source of surplus – predominantly employer / member contributions 36%
· If the employer has taken “downside” risk of underfunding 13%
· Members receiving promised benefits in full through buyout 39%
· Members’ needs (e.g. not enough inflation protection) 8%
· Employer’s financial position 1%
· Previous practice regarding discretionary benefits 3%
Colin Parnell, SPP member and Director of De-Risking, Capita Pension Solutions, who chaired the event, said;
“It was good to see that the majority of attendees whose schemes are heading for wind up might expect a material surplus. It was also fascinating to find the broad range of opinions as to what is viewed as the most important factor for trustees to consider when determining the destination of the surplus. As expected, securing existing member benefit promises was the top priority, but most employers will be happy to see that their considerable contributions over the years are also given a very high weighting.
With many schemes in surplus and headed for wind up, it’s clear that the practicalities of surplus distribution will be front and centre of many trustees’ minds in the months and years ahead.”
