Barnett Waddingham’s analysis of FTSE 350 DB schemes estimates that around £50bn in surplus funds could be returned to FTSE 350 DB scheme sponsors if the Mansion House proposals are approved.
This sum represents around 10 per cent of FTSE 350 DB scheme assets and around two-thirds of the total dividends paid by FTSE 350 DB scheme sponsors in 2022.
The analysis assumes that any surplus above 105 per cent of funding on the Pensions Regulator’s proposed “Fast Track” low dependency basis could be returned to sponsors.
It’s noted that not all schemes may return surplus funds in full due to factors like ongoing buyouts with insurance companies, tax considerations, and member benefit improvements.
Barnett Waddingham principal Mark Tinsley says: “Many pension schemes have seen large improvements in their funding positions over the past year and now have significant surplus funds.
“Sponsors, therefore, stand to benefit considerably if the rules around returning surplus funds are relaxed, as is being considered under the so-called “Mansion House” reforms. However, any reforms should ensure that members of pension schemes are not adversely affected, meaning that extra forms of security may also be needed.
“Improvements in scheme funding positions also call into question the benefit of requiring all schemes to target a low dependency funding level, as is separately being planned by the DWP and to be reflected in a new Funding Code issued by the Pensions Regulator.
“The vast majority of pension schemes are now already meeting the proposed stricter funding requirements, so the additional costs associated with requiring all schemes to comply with the proposed changes to the Funding Code may now be difficult to justify.”
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