The Association of Member Nominated Trustees (AMNT) has welcomed the government’s planned approach to surplus extraction rules that will place trustees at the centre of decision-making.
Last week, the government stated that it wanted to give defined benefit (DB) pension scheme trustees full discretion over when and how any surplus funds are released.
In its response to the ‘Options for DB schemes’ consultation, the government said trustees would be granted a “statutory resolution power” in the forthcoming Pension Schemes Bill, allowing modifications to scheme rules.
“Use of this power will be at the discretion of the trustees, who remain best placed to make decisions in the context of their individual scheme circumstances and their duties to scheme beneficiaries,” the consultation response stated.
The AMNT welcomed the move and said additional guidance from the Pensions Regulator would also be “very helpful” when considering surpluses in the context of long-term strategy and endgame options.
Maggie Rodger, co-chair of the AMNT, said: “While trustees are very familiar with assessing risk and reward, the rewards that go with the risk of the extraction of surplus should not solely be for the sponsor, or even to support the UK economy, but must include benefits for the members.”
The government consultation explicitly stated that it would not mandate how any surplus extracted from a DB pension scheme should be used.
“It must not be forgotten that surpluses have been built up not only because of employer contributions but also because in most cases members paid increased contribution rates and received lower accrual rates as a way to fund the now-disappeared deficits,” Rodger continued. “It is therefore appropriate and fair to find ways for them to share in the surplus.”
However, Rodger warned that the current proposals did not take into account situations where trustees and sponsors may disagree.
“It is good that these surplus extraction decisions should be made jointly between trustees and sponsors but the proposals do not address the situation where there is no agreement,” she said.
“For example, where trustees feel that surplus could be used to give discretionary inflation increases to beneficiaries, but this is blocked by sponsors. How can these deadlock situations be managed?”
The consultation response stated that trustees “will remain responsible for negotiating with sponsoring employers regarding possible benefits to members from surplus extraction”.
The government said this “strikes the correct balance between giving trustees the flexibility to share surplus with the employer (where this is appropriate) and safeguarding member interests”.
