Options for Defined Benefit Schemes

The UK Government's response to the consultation for Defined Benefit (DB) Schemes to access surplus funds has confirmed a new framework, eliminating the need for winding up. This shift empowers trustees and sponsors to make more informed decisions regarding surplus funds. They can now support member obligations and employer responsibilities more effectively.

Surplus Funds: What’s Changing?

Several key changes have been implemented regarding surplus funds:

• There is a lower funding threshold for surplus extraction. Schemes no longer need to achieve a full buyout funding level.

• Trustees now have the authority to modify scheme rules and extract surplus, provided there is employer agreement. This creates a more flexible framework for surplus sharing.

• While there is no 100% PPF underpin, there are clear safeguards in place to protect member benefits.

  
  

Understanding the Impact of These Changes

The changes to surplus fund access represent a significant shift in how DB schemes operate. Trustees and sponsors now have more flexibility and options at their disposal. This can lead to better outcomes for members and the overall health of the schemes.

Key Benefits of the New Framework

The new framework provides numerous advantages:

• Informed Decisions: Trustees can make well-informed choices using surplus funds to benefit members and fulfill employer obligations.

• Discretionary Benefits: There is potential for offering discretionary benefits, enhancing member satisfaction and engagement.

• Lower Contribution Requirements: Future contribution requirements can be reduced, easing financial pressure on employers.

  
  

What Trustees & Sponsors Should Do Next

To adapt effectively to these new rules, schemes should take the following steps:

1. Review Funding Positions: Analyze current funding levels to understand how they relate to the new surplus extraction criteria.

2. Examine Governance Frameworks: Ensure governance structures are in place to facilitate the appropriate use of surplus funds.

3. Implement Updated Processes: Establish processes that align with the new framework, allowing trustees to access and utilize surplus funds efficiently.

   
   

Preparing for the Future

This reform offers significant opportunities, but it is crucial for schemes to prepare adequately. By proactively reviewing their strategies and operations, trustees can position their schemes to thrive under the new opportunities presented by the changes.

How Life & Pension Systems Can Help

We offer flexible administration systems designed to support these changes for DB schemes of all sizes. Our solutions include:

• A centralized platform for member data, scheme funding records, and audit trails to ensure transparency.

• Workflow Master for clear oversight of tasks and governance, enhancing accountability.

• Pensions dashboard readiness, supporting ISP integration. This ensures schemes can meet upcoming dashboard deadlines without incurring costly, bespoke IT developments.

  
  

Solutions for Smaller DB Schemes

For smaller DB schemes, our minimal package offers an affordable solution to:

• Meet dashboard and ISP requirements effectively.

• Access robust administrative tools that guarantee data accuracy and compliance.

• Reduce reliance on manual spreadsheets, thereby streamlining processes and improving efficiency.

  
  

This is a pivotal moment for DB schemes. With these changes, your scheme has the potential to unlock new opportunities, benefiting both trustees and members alike.

Get in Touch

Are you interested in how your scheme can benefit from these changes? Let's connect. Our team is ready to support you in navigating these new regulations.