Pensions - Articles - Pension schemes support restructuring to manage DB deficits

 Eighty per cent of survey respondents supported restructuring in some circumstances and 9% in all circumstances, reflecting the growing need for alternative solutions to be found to help trustees and sponsors manage DB scheme liabilities more effectively.

 While more than three-quarters of those surveyed agreed that the DB pensions industry was either partly (36%) or fully (41%) in crisis, there is a lack of consensus on the best way to make benefit design more flexible in order to help sustain DB schemes. Forty per cent of respondents supported reducing annual inflation rises, for example, switching from RPI to CPI, followed by 26% backing higher PPF levies to protect existing pensioners. Ten per cent favoured stopping annual inflation rises and 9% cutting overall benefits.

 While relaxing the requirements to modify indexation for members in certain circumstances was one of the options considered in the recent British Steel consultation, introducing a statutory override on RPI/CPI for all schemes was favoured by just under half (43%) of survey respondents.

 Janet Brown, partner at Sackers, comments: “As the recent PLSA DB Taskforce interim report shows, the DB system is under increased pressure and both schemes and their sponsors are facing a number of challenges.

 “The Taskforce has said that the current approach to benefit change is too rigid and that work should be undertaken to investigate how a more flexible approach to benefit design could be implemented to help sustain DB schemes. But as our survey shows, there is a lack of consensus about the best way to do this.

 “While RPI / CPI is currently getting a lot of attention, it won’t be the answer for all schemes. For schemes in really stressed circumstances, more fundamental restructuring may be needed to provide sustainable outcomes for members and employers, as the recent solvent restructuring of the Halcrow Group Pension Scheme, in which we were involved, shows.”