TPR DB surplus flexibilities statement

Commenting on TPR’s statement on DB surplus flexibilities, Laura McLaren, Head of DB Scheme Actuary, Hymans Robertson, said:

“Alongside the DWP consultation on draft regulations for greater surplus flexibility, TPR has published a holding statement designed to support discussions between trustees and employers. As the regulations are finalised, more detailed guidance will flesh out the underlying principles. But this is already a clear signal of where TPR’s thinking sits and the direction of travel.

“Overall, it’s a useful round up of the key issues, and broadly consistent with wider industry conversations.

“It’s encouraging to see TPR emphasising the need for trustees to make conscious, scheme specific decisions. That inevitably means the statement is short on definitive answers – but that’s appropriate given how dependent surplus decisions are on individual scheme circumstances.

“What will draw most attention are the comments on how members should benefit, supported by illustrative case studies. In practice, questions around who surplus “belongs” to, when it should be released, how quickly, and for what purpose remain some of the most challenging. The Mansion House reforms, if anything, look set to amplify rather than resolve this tension.

“TPR stops short of directing trustees to use surplus in any particular way. However, it does give a strong steer that both employers and members may reasonably expect to benefit – consistent with what we’ve seen emerging in early deals. The suggestion is that the member share might be informed by considerations such as past contributions, benefit reductions, inflationary impacts and expectations.

“The case studies underscore this, offering an example where 20% of a surplus release is used to provide benefit increases and 80% goes to the employer – and, perhaps more strikingly, a scenario where the split moves to 50/50 when the statutory override is used and a lower release threshold is agreed.

“With limited market practice to draw on, trustees and sponsors will read this closely. It begins to sketch out what could become an emerging market view and one that may well influence live negotiations in the months ahead.”

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