Sackers comments on latest DB options consultation

On 23 February 2024, the DWP published a consultation seeking views on proposals to make it easier to make payments from DB scheme surplus to sponsors and scheme members and a model for a public sector DB consolidator run by the PPF. Partners Janet Brown and Helen Baker comment on these aspects consultation’s proposals.

Partner Janet Brown said:

The Government wants to make it easier for trustees and sponsors of well-funded schemes to extract surplus for the benefit of both scheme members and sponsors with the hope that the ability to do so will encourage investment in productive assets. The Minister’s foreword to the consultation tells us this all looks practical against the new DB funding universe and will be attractive to employers fearing overfunding and members eyeing a windfall. However, we have been here before. Surpluses sadly come and go and, for trustees to feel comfortable in removing them, they will need to be satisfied that their members’ benefits are secure.

Several potential safeguards are suggested, none of which are risk-free, but there is plenty to muil over from a power to amend rules, an actual statutory override, a possible 100% PPF underpin as a safety net (that comes with a “super levy” price tag for employers) and possible statutory changes to allow trustees to make off one payments to members on an authorised tax basis rather than bake in additional benefits to ongoing liabilities. As a client said, only recently, “we fell out over a deficit, let’s not do so over a surplus”. They didn’t, and as they went on to say, regarding any surplus and new powers and how to use them “It’s a nice problem to have”.

Partner Helen Baker said:

The Government’s desire to speed up scheme consolidation has now reached the DB universe. Having set out its vision in a little more detail, the Government is now asking schemes to assist with informing the policy design. The proposal is ambitious, aiming to offer solutions for schemes where commercial consolidators and annuities are not available, as is the timeline. It will be interesting to see whether this initiative survives the forthcoming general election. As a new consolidator will need a home, there is a logic to it finding one with the PPF as the PPF already looks after DB benefits on a large scale. Ringfencing is to be welcomed, both from the perspective of levy payers and from those who may be considering joining the consolidator.

Read our alert on the consultation, here.