DB scheme members must share the pain

Michael Johnson

Frank Field’s suggestion that we consider legislation to accommodate cuts in pension schemes’ defined benefits (DB) (FA, May 26) is catalysed by very legitimate concerns. Some DB schemes may otherwise prove to be unsustainable.

Not to prepare now would be to leave the rapidly shrinking younger generation of DB scheme members with a heightened risk of significant pension shortfalls. All scheme members should share the pain, which means crossing the generational Rubicon and including a mechanism to reduce pensions already in payment.

In parallel, we have to address the elephant in the DB room: public service pensions. There is no reason why taxpayers, the vast majority of whom have no DB provision to look forward to, should continue to bear the financial risks that such schemes entail. Politically challenging, yes, but who else is in a position to legislate to make these difficult decisions a reality? As an aside, one approach would be to introduce a Lifetime and Workplace Isa combine to the public sector, with a generous bonus up to a modest annual allowance.

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Michael Johnson

Research Fellow

Centre for Policy Studies