Defined BenefitOct 20 2016

Altmann says DWP was 'complacent' on DB crisis

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Altmann says DWP was 'complacent' on DB crisis

Former pensions minister Ros Altmann has told MPs there was an "air of complacency" in government regarding the looming defined benefit pension crisis.

Giving evidence to the Work and Pensions Select Committee on Wednesday (19 October), Baroness Altmann said the underfunding crisis facing UK DB schemes was "at a very, very critical stage".

However, she said when she was minister there was a mood in government that "most employers can afford it, they’re just choosing not to, or it’s not really something that’s a big issue".

When asked where this "air of complacency" existed, she said: "Probably both the DWP [Department for Work and Pensions] and the regulator."

She said that the first big meeting she held as pensions minister was on DB scheme sustainability. However, she said the wider issue went onto the back-burner because resources were focused on the collapse of the BHS scheme.

The Work and Pensions Select Committee is currently conducting an inquiry into the DB sector.

Committee chair Frank Field has stated that one of his objectives is to instigate legislation allowing companies to reduce benefits to avoid falling into the Pension Protection Fund.

Baroness Altmann expressed support for the central proposal - allowing schemes to link benefit increases to the consumer price index rather than the retail price index - saying it had "some merit".

"If it means the scheme is more sustainable and its sponsor is more sustainable in the long run, it will add to the security of members’ benefits, which of course is really important," she said.

"If the sponsor is forced into failure, or very close to failure, at that stage, then the regulator steps in and benefits can be cut by far more than just RPI to CPI would imply.

"And of course public sector schemes and any private sector schemes whose trustee happens to have wording that would allow it is able to do it anyway."

She said the opposing argument - that schemes must keep their promises whatever - was making "the best the enemy of the good". 

"What we ... need to do at this juncture is, I think, to have plans in place to secure the sustainability of these schemes for the longer term, rather than blindly forcing everybody to say, 'Right, that’s what you’ve promised, that’s what you’ve got to pay, every last penny.' 

"And then looking back in five or ten years’ time, when a crisis might well be upon us, and saying, 'Well if only we had a plan.'"

She said DWP should take the lead on this issue.

Responding to Baroness Altmann's comments, a spokesperson for DWP said: "We have a robust and flexible system for the regulation of occupational pensions and are working closely with the sector to understand the issues affecting defined benefit schemes."

james.fernyhough@ft.com