UK - Legislation should be changed to allow pension funds to return surplus funding to sponsoring employers where conditions meet the scheme's funding target, suggest the findings of a deregulatory review.
Details of the Deregulatory Review of Private Pensions, commissioned by the Department for Work and Pensions and published today, suggest section 37 of the Pensions Act 1995 should be amended to allow a pension fund's surplus to be returned to employers once the scheme has reached its own funding target and trustees agree it is the members' interests to do so.
Authors of the review Chris Lewin, former pensions manager at the UK Unilever pension fund, and Ed Sweeney believe this would reduce "overlay conservative" behaviour among trustees who have fiduciary duties to meet.
More specifically, they suggest there should be no statutory level at which funds should be returned - ruling out a return to contribution holiday thresholds seen under former minimum funding requirements.
Similarly, there should be no automatic return of surplus funds once they hit a specific level or belief the employer is "entitled to a return of funds" but could be returned if they are satisfied with the employer's covenant and there is no indication the scheme will soon be wound up, according to the Review.
Softening of the rules on surplus funding are among a series of proposals to ease regulatory obstacles in DB schemes.
Other ideas set out by the Review include a recommendation to allow the development of risk-based DB schemes, as this would reduce funding pressure on employers by passing some of the funding responsibility to members while maintaining DB access, and well as a one year ‘period of grace' to the debt ‘trigger' date for multi-employer schemes.
Similarly, the Review has proposed further support of principles-based regulation be encouraged and a softening of trustee knowledge and education requirements so the pension trustee board is required to prove it has the appropriate knowledge, rather than each individual trustee.
Joanne Segars, NAPF chief executive, said these key developments, if enacted by the government, would support employers' pension fund offerings.
"We welcome the reviewers' recommendations on the return of surpluses which will make it easier for employers to fund schemes without fear of the money being trapped, and on Employer Debt in cases of legitimate corporate transactions," said Segars.
"The acknowledgement that the trustee board as a whole, and not each individual trustee, should have the relevant level of knowledge and understanding follows the NAPF's own recommendation and puts trust boards on a level playing field with corporate boards," she added.