By Joe Dabrowski
If you could fix one thing for defined benefit (DB) pension schemes what would it be? That was the question posed to delegates at the Pensions and Lifetime Savings Association’s (PLSA) Investment Conference 2016 at the beginning of March.
The difficulties facing DB pension schemes are no secret. At the end of February 2016 the total section 179 deficit was £323bn; nearly 5,000 DB schemes in the UK were in deficit and gilt yields remained low – with little chance of recovering in the near future.
With more uncertainty on the horizon in Europe and across the globe alongside long term trends like improved longevity – things certainly aren’t going to get easier. Currently there are 10 million people in the UK over 65 years old, the latest projections suggest there will be around 19 million by 2050, a rather daunting increase of 90%.
In this climate it’s only right that we ask ourselves what more can be done to improve the long-term sustainability of DB pension schemes. Whilst issues such as funding, investment returns and longevity don’t impact all DB schemes, or all schemes consistently, some are definitely struggling and with 16 million people saving into DB schemes it’s important we assess how big and immediate the challenges are and what can be done to help.
We must also remember the far-reaching impact of problems in DB. We need look no further than the recent headlines about BHS for an example. The health of DB schemes has a material effect on employers, government and the wider economy. DB pension schemes should be economic powerhouses – fuelling investment in the real economy, leading to job creation, growth, economic prosperity and, in turn, more pension saving.
It’s clear that improving the health of DB schemes is crucial, which is why Joanne Segars launched a taskforce to tackle the problems faced by DB pension schemes at this year’s Investment Conference.
Made up of industry experts and academics, and chaired by Ashok Gupta former joint-deputy Chair of the Bank of England’s Procyclicality Working Group, the taskforce will seek views and evidence from schemes of all sizes, as well as sponsors, regulators, government and intermediaries, to get to the heart of the issues affecting DB schemes.
Some may argue that many solutions to the problems facing DB have been proposed before. But they were suggested in different times and we now live in a much changed macro-economic environment. Although, many issues have remained we need a fresh perspective on how to tackle them.
Full findings from the Taskforce will be unveiled at the PLSA Investment Conference in March 2017. Whilst it’s likely there’s no silver bullet to fix the problems in DB, as Joanne Segars stated in her conference speech: “If we work together, I know we can find the right answers.”
Anyone who would like to share their views on the how to tackle the problems faced by DB schemes are encouraged to contact the DB Taskforce at DBTaskforce@plsa.co.uk.
Joe Dabrowski is head of governance & investment at the Pensions and Lifetime Savings Association
