Lloyds Banking Group and other listed companies could be allowed to extract as much as £50 billion from their pension schemes under radical plans set out by the Chancellor in his recent Mansion House speech.
One of the central ideas floated by the Chancellor is to make it easier for pension schemes to return pension surpluses to sponsoring employers. A pension surplus arises when a scheme’s assets are more than its liabilities. At present, the current rules only allow employers to get their hands on that money in exceptional circumstances.
According to an analysis of FTSE 350 companies by Barnett Waddingham, the actuarial consultancy, “schemes have £50 billion of surplus funds which would currently be available to be returned to sponsors if the Mansion House proposals are agreed. This equates to around 10% of the FTSE 350 DB scheme assets and is equivalent to around two-thirds of the total dividends paid in 2022 by the FTSE 350 DB scheme sponsors”.
This all part of the Government’s strategy of encouraging pension schemes to invest more adventurously in the UK. The idea is that employers who control Trustee Boards might be willing to invest in riskier UK assets if they could get their hands on any surpluses that might be produced. According to the Tony Blair Institute for Global Change: “The UK is one of the only major economies where domestic pension funds have in effect abandoned investment in UK companies. The proportion of UK pension funds invested in bonds increased from less than 20 per cent in 2000 to 72 per cent in 2021, even as their investments in UK equities dropped from 50 per cent of their asset allocation in 2000 to just 4 per cent in 2021”.
The Government is also consulting on proposals to consolidate pension schemes. There are over 5,000 defined benefit pension schemes and the aim would be to have just a handful of ‘super’ pension schemes. There are also some 27,000 defined contribution pension schemes and those would be consolidated into a number of ‘master trusts’. We will cover that proposal, which raises a number of questions of transparency and governance, in a future Newsletter.
The triennial valuation for the Group’s three main defined benefit pension schemes is in progress. Lloyds said it: “expects to have substantially agreed the valuation with the Trustee by the end of the third quarter of 2023, along with a revised contribution schedule in respect of any remaining deficit. The Group made a fixed contribution of £0.8 billion in the first half of 2023, consistent with 2022 and 2021. The Group has also discussed with the Trustee the likelihood that further variable contributions will not be necessary in 2023 and beyond”. As we explained in a previous Newsletter, the Trustee should oppose any attempt by Lloyds to stop contributing into the schemes, especially during these uncertain economic times. Members will recall that the last contribution holiday resulted in the schemes falling into massive deficit. We also believe that any future surpluses generated by the Lloyds pension schemes should be used to strengthen the fund so it is better able to withstand future shocks, which are inevitable, and not be siphoned off by the Bank.
We will respond to the Government’s final proposals when it publishes them later this year.
Wilis Towers Watson
Are you happy with the way Willis Tower Watson (WTW) is administering Lloyds’ pension schemes? I ask because, according to member feedback, WTW’s level of customer service leaves a great deal to be desired. Members complain about not being able to get through to WTW or not having letters answered. That’s not acceptable.
The Trustee, is paying millions in fees to WTW and needs to get a grip of this situation quickly. It must ensure that any service level agreements are fit for purpose and are being met consistently by WTW. We will be writing to the Chairman of the Trustee Board asking for his assurance that he will tell WTW to improve their services to pension scheme members. If WTW can’t, or won’t, then the contract should be moved elsewhere. WTW may (or may not) be the cheapest option but cost should not be the only driver here.
In the meantime we will be surveying pensioner members so we have as complete a picture of the situation as possible. The Trustee should be doing the same to ensure it’s getting value for money.
Members with any questions on this Newsletter can contact the Union’s Advice Team on 01234 262868 (choose Option 1).
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