SPP praises proposal to unlock DB surplus

The Society of Pension Professionals (SPP) has welcomed the Department for Work and Pensions’ draft Regulations on surplus flexibilities for defined benefit (DB) pension schemes, stating they provide an appropriate framework for well-funded schemes to release surplus while protecting members. The SPP has emphasised the importance of using a low dependency funding basis as the minimum funding test and insists that decisions regarding the level of surplus released should rest with trustees, considering scheme-specific circumstances and covenant strength.

Nonetheless, the SPP is advocating for modifications to make the regime more practical, especially for schemes aiming to maintain a long-term run-on basis. The organisation argues that the proposed process is excessively tailored towards one-off payments, which could render regular or phased distributions unnecessarily burdensome. “The SPP welcomes the Government’s proposals, which at a high level provide a sound framework for well-funded DB schemes to make productive use of surplus while protecting members,” said Jon Forsyth, Chair of the SPP’s DB Committee.

Furthermore, the SPP seeks greater flexibility concerning the payment process. It suggests allowing trustees to release less than the provisional amount without necessitating a restart of the process and proposes extending the five-working-day period currently set between actuarial certification and payment. Additionally, the SPP believes that the proposed three-year forward-looking actuarial test should be refined to lessen uncertainty and avoid disproportionate costs, recommending language that aligns more closely with existing actuarial certification standards.

The SPP also underlines the importance of aligning pensions and tax legislation for segregated schemes, as ongoing uncertainty in this area could hinder timely surplus returns. “However, the regime needs to work effectively in practice. Greater flexibility around regular and phased payments, the actuarial tests and payment timetable would help ensure the new framework delivers its intended benefits without creating unnecessary governance burdens or other unintended consequences,” Forsyth continued. This proactive stance from the SPP aims to secure a balanced approach that will facilitate the beneficial use of surplus while safeguarding member interests.