8 hours ago
Is YOUR pension safe? Concerns over new law letting companies take 'surpluses' from schemes relied on by nine million Brits
Concerns have been raised over plans to let firms take profits from pension funds used by around nine million Brits.
Proposed changes to 'defined benefit' schemes would mean that 'surplus' cash can be extracted for profit or re-investment.
The government argues the move will free up £11.2billion over the next decade that would be partly shared with members.
It would also provide a £.28billion windfall for the Treasury, as the drawdown would be taxable.
However, the impact assessment for the Pensions Bill acknowledged that the overhaul removes a 'cushion' and might make it more likely schemes will 'struggle'.
DB pensions - such as final salary and career average arrangements - have diminished in the private sector since the 1980s.
They have been replaced largely by 'defined contribution' schemes, where the individual and employer pays into a specific 'pot' to fund retirement.
The Pensions Bill impact assessment said: 'If schemes choose to modify their rules to enable surplus extraction, this adds an indirect cost to members in terms of the increased likelihood of members not receiving their pension benefits in full.
'A scheme surplus can act as a financial cushion for members, to absorb unexpected costs or investment losses for the scheme.
'Without this cushion, the scheme may be more likely to struggle to meet its obligations to members, especially in times of financial stress or economic shocks.'
The document stressed that schemes would be required to meet conditions to extract a surplus, in order to 'protect members'.
As a result the risk of members not receiving benefits in full was seen as 'very low'.
'For employers with a weak covenant, accessing a surplus may improve the employer financial position but may risk the pension scheme becoming underfunded,' the assessment said.
'If sponsoring employers of underfunded schemes were to also become insolvent, these schemes may then transfer into the PPF, increasing its liabilities and may mean members potentially losing out.
'Overall, it is assumed this increased likelihood of members not receiving their benefits in full to be very low given the important role trustees will play in overseeing any decision.'
The Pension Security Alliance (PSA), which includes campaigning group Silver Voices, told the Telegraph: 'It's shocking to learn that civil servants have told ministers that if these plans go ahead, some pension schemes could struggle to meet their obligations to pay pensions.'
Steve Webb, partner at pension consultants LCP, said: 'There really is a lot of 'surplus' money locked up in these schemes, over and above what is needed to comfortably pay the pensions.
'If done responsibly, some of this money can be used to boost the pensions of people in these schemes (eg give them better inflation protection) and boost the position of British business (who have paid in the lion's share of the money).
'Note that companies cannot simply dip in to the fund - this all has to be agreed with the trustees who are there to look after the interests of members.'
