Pensions Bulletin 2025/41

Coca-Cola – Court approves surplus deal

The High Court has blessed two linked decisions relating to the Coca-Cola Company Pension and Assurance Scheme, being to vary the termination payment under the Scheme’s existing buy-in policy, as part of the policy’s replacement with a new, cheaper, policy covering the same liabilities, and to augment beneficiaries’ benefits from surplus that will be released from the Scheme on its winding up.

This DB scheme closed to new entrants in 2006. The benefit liabilities are almost entirely secured with buy-in policies but using a fairly unusual offshore captive structure – buy-in policies are with Axa as “fronting insurer”, but they are reinsured with a captive reinsurer within the Coca-Cola group located in Bermuda.

As part of this arrangement, the Bermuda reinsurer is required to hold substantial regulatory capital and a termination payment is due from the reinsurer if the insurance agreement is terminated. Because of movements in insurance pricing the termination payment would be a lot more than the cost of buying new insurance policies – £232m vs £150-160m.

There are five remaining active members and this structure provides for premiums to continue to finance their ongoing benefit accrual. The Scheme also holds approximately £46m of surplus assets.

The way that the balance of powers is written in the Scheme is that the trustee would not be able to access the surplus generated by the surplus assets in the Scheme unless the Principal Employer gives notice of winding up. Therefore the deal the Court was asked to approve means that members get their benefits in full, the trustee gets to distribute the £46m in the Scheme to members (an across the board 27% uplift) as part of the Scheme winding up and Coca-Cola get back £41m of regulatory capital plus a £232m capital buffer from the reinsurer minus the £150-160m for the new buy-in.

The Pensions Trust announces a new DB superfund

The Pensions Trust has announced its intention to launch a new DB superfund, having secured capital to fund the first £1bn of transactions which it anticipates will be sufficient to support a number of deals subject to scale, regulatory approval and market conditions. 

Unlike the ‘bridge to buyout’ model that Clara operates (the sole DB superfund to have passed the Regulator’s assessment process), The Pensions Trust will use a ‘run on’ model, meaning that the superfund will meet the pension promises as they fall due. 

The Pensions Trust also says that its superfund’s focus will be to increase the likelihood that members receive full benefits, with distributions to members from surplus from year five onwards, increasing to the majority of surplus once the risk capital has been returned to the investor.

It is not clear from the announcement whether this superfund will emerge after going through the Pensions Regulator’s assessment process under the ‘interim regime’, or whether it will seek authorisation under the statutory regime currently being legislated for through the Pension Schemes Bill. 

According to the Financial Times, The Pensions Trust is targeting growth of to up to £3bn in the first five years of the superfund’s operation. Surplus distributions to members will be in the form of augmentations to member benefits.

Pensions Regulator highlights decumulation findings in DC survey

The Pensions Regulator has published a report setting out findings from a telephone survey of a number of trust-based occupational DC pension schemes conducted between March and May 2025 by OMB Research.

A range of topics were covered including value for members, decumulation benefit options, administration, transfer of members to a master trust, pension scams, and capabilities in relation to climate-related risks/opportunities and diversified investments. However, in its press release accompanying the report, the Regulator focussed solely on the decumulation benefit options findings.

On this the research found that 27% of the DC schemes surveyed offered decumulation benefit options for members. However, every Master Trust surveyed provided these and they were also more common among larger schemes (the breakdown being large 55%, medium 43%, small 25%, micro 23%).

Master Trusts were more likely to provide decumulation benefit options in-scheme (87%) than via partnerships (33%) but it is the other way round for other schemes (12% and 21% respectively). The main reasons for not offering in-scheme options, for those that do not, was a perceived lack of demand from members (65%), preference for external partnerships (41%), cost/resource constraints (38%) and regulatory complexity (34%).

Awareness (of any sort) of the future legal duty, being legislated for by the Pension Schemes Bill, for schemes to provide a default decumulation solution stood at 26% of schemes but was very much a function of scheme size (Master Trusts 100%, large 77%, medium 76%, small 47%, micro 13%). “Awareness” for this purpose came at many different levels including those who had heard about it but didn’t know anything about it.

The Pensions Regulator highlighted that 51% of schemes with at least some knowledge of the duty had started reviewing their decumulation offering as a result. However, this will be only 13% or so of the schemes surveyed. 

IFS calls for tax reforms to make any tax increases less damaging

The Institute for Fiscal Studies has published a paper setting out options for tax increases at the forthcoming Budget, acknowledging a widespread expectation that tax rises will be a key feature, and calling for any changes to tax policy to be done in a way that, ideally, improves the design of the tax system and that, at a minimum, does not worsen it.

In Options for tax increases, the IFS says, in relation to pensions taxation, that although restricting income tax relief on pension contributions would raise large sums, this should be avoided as it would be unfair and distortionary to restrict up-front relief but continue to tax pension income at the taxpayer’s marginal rate. The IFS also points to the great difficulties in attributing employer contributions to DB schemes to specific individuals so that they could be taxed.

If further tax is to be raised on pension savings, the IFS points to levying some NICs on employer pension contributions and/or reforming the 25% tax-free lump sum.

Pointing to the annual cost of NICs relief on employer pension contributions of around £30 billion in 2029/30 terms, the IFS says that “there are legitimate questions as to whether the subsidy needs to be so large”. It says that “numerous possibilities exist for moving towards a system in which at least some NICs are charged on employer contributions”.

On the tax-free lump sum, the IFS says that this is “ripe for reform” given that it “provides the largest benefit to those with the highest incomes in retirement” and “subsidises saving for those who have already accumulated big pension pots”. The IFS sets out two options – a simple reduction in the current £268,275 cap, to say £100,000, or the replacement of the tax-free lump sum in its entirety with a taxable cash top up on pension withdrawals. The latter is described as an “attractive option” as it could “be done in a way that also raised meaningful amounts of revenue while still strengthening saving incentives for those most at risk of under-funding their retirements”.