04.11.2024
In this blog, our Chief Customer Officer, Sara Protheroe, shares our experience of working with overfunded schemes that enter the PPF’s assessment period and how we’re helping them to achieve the best possible outcomes for members.
The defined benefit (DB) pension universe now looks very different from what it looked like just three years ago. Boosted by employer contributions and rising interest rates, the outlook for many schemes has significantly improved.
This improvement in the overall funding position of DB pension schemes has also been seen in the schemes that have entered our assessment period in the last few years following an employer insolvency.
More schemes are entering the PPF overfunded
Now, on average, more than half of schemes that enter our assessment period are overfunded, which is great news for the members of those schemes as it means there may be an opportunity for their scheme to buy out benefits above the levels we provide, with an insurer or a commercial consolidator.
However, we were historically set up to pay compensation to members of underfunded schemes and, as a result, our processes were geared towards efficiently assessing this type of scheme and preparing them for entry into the PPF.
Although this didn’t stop us from supporting overfunded schemes exit our assessment period and find a suitable end-game solution, we recognised that, to provide the highest level of service to these schemes, we needed to make changes to adapt to the evolving external environment. This meant remodelling our processes and involvement in these schemes so that we could best use the skills and experience we had built up over the years to make a positive difference in this area.
The PPF+ Advisory Panel specialises in supporting overfunded schemes
Having looked into how we managed overfunded schemes through our assessment period, in 2022 we announced that we had set up and appointed four firms to our PPF+ Advisory Panel.
Since then, this panel has worked on making sure overfunded schemes are supported as effectively as possible, by providing helpful transaction advice, so that the members of those schemes get certainty about their future benefits as quickly as possible.
With the support of the PPF+ Advisory Panel, we have been able to support 26 schemes working towards securing deals outside of the PPF in the past two years. Because of our work in this area, schemes like the Arcadia Group Pension Scheme and Debenhams Retirement Scheme have been able to secure full benefits for their members despite the insolvency of their sponsoring employer.
We work closely with insurers and commercial consolidators
The increased numbers of overfunded schemes entering our assessment period means that we’re finding ourselves working more closely than ever with organisations that provide end-game solutions to DB schemes – including insurers and commercial consolidators.
As with all schemes that come into our assessment process we complete rigorous checks - including identifying and cleansing data issues and carrying out a full administrative review - to ensure that the information relating to overfunded schemes’ investments and members is accurate. This work means that insurers and commercial consolidators can treat the information they receive about the scheme with a high degree of confidence, which supports a more efficient transfer of the scheme.
We’re really pleased to see the growth in end-game choices for DB schemes and that’s why we’re supportive of The Pension Regulator’s interim regime for superfunds and the government’s commitment to put the regulation of superfunds on a statutory basis.
Smaller overfunded schemes still face barriers in securing transfer deals
While we’ve supported a number of large, overfunded schemes to secure benefits outside of the PPF, smaller schemes face more difficulty when trying to find an end-game solution. In our experience those providing end-game options typically focus their administrative resources on concluding bigger deals, with less appetite for transacting with smaller schemes.
These issues don’t just impact small, overfunded schemes who are in our assessment period, the data in The Purple Book 2023 suggests that the majority of smaller DB schemes are at or approaching buyout levels. As a result, we expect that the challenges that smaller schemes face in achieving buyout will become more pronounced in the near future and so we’re hopeful that the government’s commitment to establish a public sector consolidator for DB pension schemes by 2026 will mean the end-game goals of schemes of all sizes will be achievable.
