What the Pension Schemes Bill Means for Employers
Collaborative Post
The latest Pension Schemes Bill introduces a series of reforms that will have far-reaching implications for how you manage your employees’ retirement benefits.
With provisions designed to simplify processes and increase the flexibility of pension funds, the Bill demands careful consideration of your obligations and strategies.
Surplus Extraction from Defined Benefit Schemes
One of the key changes introduced is the ability to unlock surplus from defined benefit pension schemes. This will likely be relevant for employers with mature pension plans where the scheme’s assets exceed its liabilities.
Historically, surplus extraction has been a complicated and sometimes controversial process. However, the new rules aim to make it easier for employers to access that surplus, provided the scheme remains in a strong financial position and the trustees approve the move.
Employers will be able to take advantage by using it to reduce future contributions or to fund other business activities. However, it is essential to approach this with caution, as trustees will assess whether the ongoing sustainability is jeopardised by releasing funds.
Impact of Surplus Flexibility on Employer Strategy
With more control over surplus funds, you might be tempted to extract these for other business priorities. This new flexibility could change how you approach pension scheme management, giving you a tool to improve cash flow or support corporate strategy.
However, you should proceed with caution. Extracting too much too quickly could risk underfunding your scheme, leading to regulatory intervention or damaging your reputation with employees and stakeholders.
Consider consulting with pension trustees and advisers to assess the most beneficial approach, ensuring that any surplus extraction aligns with your overall business goals without compromising pension security for employees.
VFM Framework and Consolidation of DC Pots
The Bill also introduces a Value for Money (VFM) framework, which impacts how you manage defined contribution (DC) pension pots. Under the new rules, you are now required to offer employees better value for money, particularly in terms of investment choices and pension costs.
This could mean consolidating DC pots across different providers to streamline costs and improve efficiency. As an employer, this places you in a position to offer a more competitive product, making it easier to attract and retain talent.
Statutory Superfunds Regime and PDF Levy Changes
The Bill welcomes a statutory superfunds regime, which provides a new option for defined benefit schemes that are underfunded or struggling.
Superfunds are private-sector funds that take over the pension liabilities of companies, ensuring that employees’ benefits are protected while offering a potential solution for those dealing with deficits.
At the same time, the Bill introduces changes to the Pension Protection Fund (PPF) levy, which is charged to employers with defined benefit schemes. These changes could impact your financial obligations, especially if your scheme is at risk of entering the PPF.
This article is for information only. If you are considering using a superfund, you should consult with legal and financial advisers to understand the full scope of implications.