There are a few areas of scheme management where trustees and the employer are in natural tension, and one of these is the matter of surpluses.
Employers are tempted to dip into the pot, while trustees have to consider the security of their members’ savings. The National Association of Pension Funds’ Helen Forrest takes us on an interesting journey through the trickiness of working out if a surplus exists at all, and what can be done about it.
We have reported this year on the increasing use of reservoir trusts, which allow money to be held for the scheme in case of employer insolvency, or repaid to the employer in the case of over-funding. In May, we reported that the Shell Contributory Pension Fund had created a similar contribution reserve account to avoid contribution holidays.
But we have also reported on Invensys terminating its reservoir trust after only a year, following the purchase of the sponsor by global technology company Schneider Electric. Schemes will make these bargains with employers when they have to, but they do not have to be set in stone.
Illustration by Ben Jennings
Elsewhere this week, I blogged on the winners and losers from the FCA's decision on who is going to pick up the cheque for the guidance guarantee (trust-based schemes, not you yet), on a massive and massively complicated buyout of the TRW Pension Scheme, and the Pensions Policy Institute's latest report on defined contribution pensions.
As with the case of defined benefit scheme funding, the question of the generosity of the employer is crucial to DC. Our story this week on distributor Wolseley UK demonstrates an employer that is trying to do more on contributions, without losing members from workplace saving.
It is all in balance. We stress the importance of adequacy in DC and getting people’s contributions up, but it is no good if we cannot keep people in the scheme. For large companies, as the relief fades that initially opt-outs were not higher, the ongoing work to engage new joiners has only just begun.
Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.
