RegulationMar 9 2017

In search of a lasting settlement

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In search of a lasting settlement

DB schemes: facts & figures

   There are 5,794 DB schemes. 

   £1.5 trillion under management.

   There are 11 million members in a DB scheme.

   Average DB pension is £7,000 p.a.

   In the last 10 years, active memberships have declined by more than 50%.

   Only 13% of DB schemes open to new members.

   About 90-95% of schemes in deficit on Technical Provisions basis.

   Average recovery plan is eight years.

   Around 5,000 schemes have less than 1,000 members.

   75% of schemes refer to RPI in respect of post-97 pension indexation.

Preliminary conversation

To conclude, the Green Paper is, as many others in the industry have alluded to, "very green", a preliminary conversation rather than real consultation, and almost devoid of any real direction of travel in terms of future policy. Also, when considering the factors affecting the funding of and deficits in DB schemes, life expectancy, economic uncertainty and investment returns are highlighted.

However, almost no mention is made of ‘regulation’, even though JLT’s own research found that additional benefit guarantees imposed by legislation has had a bigger impact than anything else. The promises that employers are forced to underwrite now bear little resemblance to the promises made when schemes were set up in the 1960s, 70s and 80s.

Most importantly, when asserting that we can, in effect, just ‘kick the can down the road’ for another potential 50 plus years, the paper fails to recognise that DB schemes do not operate in a vacuum. Only lip service is given to the wider consequences of sticking with the status quo: reduced corporate activity, intergenerational unfairness, legacy DB acting as a ‘drag’ on DC, and an adverse effect on the wider economy.

It is for these reasons that a lasting settlement for DB schemes is needed now, regardless of whether employers can theoretically still afford them. 

John Wilson is head of technical of JLT Employee Benefits


Key points

The government recently published a Green Paper on the sustainability and security of DB pensions.

There is an appetite to explore whether there is scope to encourage some schemes to make more optimal investment decisions.

Further savings could be achieved by simplifying benefit structures.