Aviva has launched a solution within its Aviva Master Trust that enables defined benefit (DB) pension fund trustees and employers to transfer surplus into defined contribution (DC) arrangements.
The provider said that where trustees have a plan to secure member DB benefits, unlocking surplus can deliver “significant benefit”, helping pension funds progress towards wind-up, giving employers tax-efficient access to capital, and enhancing DC benefits for members.
The latter, it said, can support stronger retirement outcomes and future financial security.
The flexible solution offers a secure and compliant way to deploy surplus capital, it said, and is available to new and existing clients whose DB schemes are in surplus.
Earlier this year, the Department for Work and Pensions confirmed it would amend the existing framework for surplus extraction from DB schemes to remove barriers to extraction, while maintaining stringent funding safeguards to protect members’ benefits.
The announcement came as the UK government published a response to the ‘Options For DB schemes’ consultation, which was launched under the Conservative government to explore new measures such as surplus extraction and a public sector consolidator run by the Pension Protection Fund (PPF).
And with legislation following the Pension Schemes Bill on the horizon, surplus transfers could become a realistic option for some schemes earlier than expected, Aviva said.
Geoff Marchment, head of master trust development at Aviva, said: “Unlocking DB surplus can benefit employers, trustees and DC scheme members. Our new solution helps trustees and employers, supported by their advisers, to deliver better outcomes for members in a tax-efficient way – demonstrating how the Aviva Master Trust continues to evolve to meet the changing pensions landscape.”
John Smitherman-Cairns, commercial director of bulk purchase annuities at Aviva, added: “Where trustees have secured the funding needed to guarantee the benefits of DB scheme members, either through buyout, buy-in or run on, this forward-thinking solution allows trustees to redeploy surplus funding to support the retirement plans of DC members.”
Due to the progression of legislation, which is a part of the Pension Schemes Bill, other providers made commitments to running on or surplus sharing.
As a result, the trustees of the Schroders Retirement Benefits Scheme (SRBS) will be able to use approximately 10% of the DB section’s surplus per annum to support DC members’ funding, operating within key guardrails to ensure that the DB pension remains in a healthy position.
This, Schroders said, will involve regular funding level and covenant checks, as well as a mechanism to recoup contributions should the DB section’s funding level deteriorate.
Then in March, Aberdeen confirmed the trustee of its main DB pension plan had agreed to unlock part of the plan’s “significant” surplus to fund the cost of providing DC benefits to current employees.
According to the group’s annual results, at the time the closed DB scheme had a surplus of £800m. The agreement, which is one of the largest of its kind, intends to enable Aberdeen’s DC contributions to be funded from the DB surplus, while largely maintaining the surplus and retaining optionality.
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