Legal & General (L&G) has announced that it will be providing defined benefit (DB) pension scheme trustees and employers with the capability to transfer surplus funds into defined contribution (DC) scheme arrangements, including the L&G Mastertrust.

The group said that the new client offering had been launched in response to the long-term trend of DB scheme surplus growth, and is intended to provide a practical solution to a maturing market.

Indeed, it pointed out that, due to higher gilt yields in recent years, approximately 75 per cent of DB schemes are in surplus on a low-dependency basis, meaning that further contributions are not expected to be necessary to pay the pensions liabilities due.

Whilst the evolving regulatory framework is set to make the responsible extraction of scheme surplus more widely available as an option to trustees, L&G confirmed that it is now able to offer this capability (subject to individual scheme rules) through the master trust framework.

The group suggested that facilitating surplus transfers will enable trustees of well-funded DB schemes and employers to strengthen their commitments to members’ DC arrangements.

In addition to this, it pointed out that such transfers can help employers reduce their ongoing contribution costs or increase contributions to strengthen employee pension outcomes, while remaining compliant with existing scheme rules and tax legislation.

L&G also confirmed that, in the case of any surplus transaction, existing scheme liabilities to members would not be impacted, and transferring trustees must be satisfied that making a transfer would be in accordance with scheme rules and fiduciary duties to act in members’ best interests.

Commenting on the news, L&G Mastertrust chair of trustees, Robert Waugh, said: “The trustee board were pleased to recently approve the transfer of defined benefit surplus funds into L&G’s Mastertrust, recognising its potential to increase the security of ongoing contributions to members’ savings in a transparent and well-governed way.

"This is a timely solution that provides long-term benefits to DC savers, while maintaining the high standards of oversight and compliance that underpin the master trust.”

Adding to this, L&G DC & workplace savings CEO, Paula Llewellyn, said: “As regulatory and policy developments create new opportunities for pension schemes, we’re well positioned to support trustees and sponsors with solutions that unlock value responsibly and help deliver better member outcomes.

"The discussion of how to efficiently utilise DB surplus funds has been steadily growing in recent years as clients seek to prepare their endgame strategies.

"Our surplus transfer capability reflects the maturity of the DB market and the growing need for joined-up, cross-scheme thinking to help improve retirement adequacy across generations.”

---