The Work and Pensions committee has launched an inquiry that will review defined benefit (DB) pension schemes and the challenges they pose to members, trustees, employers and the Pensions Regulator (TPR).
DB schemes promise to pay pension benefits based on salary and length of service and there are currently around 5,100 UK private sector DB schemes with around £1.4trn in assets.
In its Saving for Later Life Report, the cross-party committee found that people with access to a DB pension were more likely to be on track for an adequate income in retirement.
Meanwhile, scheme funding levels have improved over the last year, although the gilts crisis in September revealed weaknesses in governance and regulation which need to be addressed.
Sir Stephen Timms MP, chair of the Work and Pensions committee, said: “The committee has previously heard from witnesses that DB schemes were ‘one of the best things our country ever did’, although many companies have moved away from them since the 1990s over concerns about cost.
“With the improvement in scheme funding levels over the last year, now is a good time to investigate whether the regulatory framework is set up to enable private sector DB schemes to continue to thrive under good governance and provide positive outcomes for scheme members.
“We will also examine the way DBs can be consolidated or bought out.”
DB schemes are in decline in the private sector and the number of private sector employees still accruing new DB benefits reduced from 3.5mn in 2006 to just under 0.9mn in 2022.
However, they remain of critical importance, with 9.6mn members relying on them for a substantial portion of their expected retirement income.
The committee is asking for submissions to its inquiry which asks a number of questions such as whether the right regulatory framework is in place to enable open DB schemes to thrive and whether there is sufficient capacity in the buy-out market to meet demand from DB schemes.
It asks about alternatives, what TPR should do to improve the quality of trustee boards and what, if any, further steps should be taken to encourage DB scheme consolidation.
Other questions include:
- Are there any circumstances in which consolidation should be mandatory?
- Do the recent improvements in funding levels change the future role of DB schemes in UK pension provision?
- How should scheme surpluses be treated? For example, should they remain in the scheme or be shared between employers and scheme members?
- What are the implications of improved funding levels for the Pension Protection Fund?
- Should changes be made to the Pension Protection Fund (PPF), Financial Assistance Scheme (FAS) or Fraud Compensation Fund (FCF) to improve outcomes for members?
The deadline for submissions is April 26.
sonia.rach@ft.com
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