The Department of Work and Pensions has launched a consultation looking at how to improve the security and sustainability of defined benefit (DB) pension schemes.
Ministers will speak with pension professionals, employers and members to explore ways to increase the protection of the 11 million people who save into a DB scheme to fund their retirement
This green paper comes in the wake of several high profile pension problems, such as the collapse of BHS and the vote for lower benefits at Tata UK.
Funding, investment, affordability and consolidation will fall under the committee’s microscope. The government could also consider giving The Pensions Regulator more power.
Pensions minister Richard Harrington said this review is about building confidence and security in the pensions industry. “We want to ensure that these important pension schemes remain sustainable for the future and that the right protections are in place for members,” he added.
Society of Pension Professionals president Hugh Nolan welcomed the green paper, sharing the main conclusion that there is not a significant structural problem with the regulatory and legislative framework.
The organisation is concerned, however, that some employers are struggling to fund sizeable deficits. “The fact that only 13% of DB schemes were still open to new members in 2016, suggests that there is a genuine problem with ‘affordability’, even if most schemes and employers are currently surviving,” Nolan said.
“It is important to maintain regulatory flexibility to support stressed schemes and buy employers the time they need to fund these deficits.”
CBI director of people and skills Neil Carberry also welcomed the green paper, describing it as a “sensible start to what is a complex conversation about how to boost growth and honour pension promises”.
“What we need to avoid are any measures that risk damaging the health of the sponsoring employer, and therefore the security of the scheme, like mandatory clearance on certain corporate transactions,” he said.
“Actions like moving to the official measure of inflation for indexation (CPI) and encouraging different ways to accurately and appropriately measure the funding position of schemes, could provide real support to businesses,” he added.
Pensions and Lifetime Savings Association director of external affairs Graham Vidler said the green paper moves the debate on the future of DB pensions forward.
“We firmly support the government’s desire to explore consolidation as a way to secure the defined benefit pensions of millions of savers,” he added.
But Darren Redmayne, head of Lincoln Pensions, does not agree with the green paper’s conclusion that the evidence for DB schemes being unaffordable is far from conclusive. “Companies have for years told government that DB schemes are unaffordable – explaining why so many have been closing,” he added.
He also believes that companies should not reward shareholders if the pension fund has a deficit. “It’s amazing how much company dividends have increased in recent years relative to deficit recovery contributions as shown in today’s green paper.”
