Defined benefit provision is a large part of the pension landscape in the UK and will be for some time, with around 16 million members and over £1 trillion of assets. However, defined benefit schemes are swimming against the economic and social tide in order to make sure members’ benefits are paid. This can be illustrated by the fact that the deficits are close to £300bn1 and recovery periods in defined benefit schemes are not shrinking2 despite the extra contributions employers have made, including £44bn3 over the past three years.
It is important we take action to protect members’ benefits against these wider economic and social factors and the Taskforce will work to ensure we have a full understanding of the problems in order to present responses to make the system more sustainable.
The Taskforce suggests three areas in which it believes solutions may lie:
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Efficiency − across all functions from day-to-day administration to the appointment of fund managers and how investment strategies are implemented.
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Capital allocation – scheme sponsors are diverting investment capital into DB schemes to address rising deficits.
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Member benefits − funding challenges which are pushing employers into unfair trade-offs between different employee groups and the impact of binary legislative outcomes which result in DB member benefits being paid in full or falling into the Pension Protection Fund (PPF).
Ashok Gupta, Chair of the Taskforce, commented: "The recent news about the British Steel Pension Scheme shows how important a role DB schemes play in our wider economic and social structures. This recent case also illustrates just how strong the tide is against DB schemes and their sponsoring employers.
"Schemes, trustees and employers have worked extraordinarily hard to stay ahead but it's increasingly clear that even for closed schemes to survive a radical re-appraisal of how they operate is needed. That is an extremely complex task as DB schemes are different things to different people. So we want to hear views from everyone who has an interest in DB schemes − from scheme members through to trustees, sponsors, regulators and government."
Joanne Segars, Chief Executive of the PLSA said: “The challenges facing UK DB schemes are many and wide-ranging. Taken individually or collectively these issues have often seemed too complex or enormous to address, however the need for a clear understanding of these issues and long-term solutions for all DB schemes and their employers has never been clearer.
“I would encourage anyone with an interest in the future of DB provision to engage with this call for evidence.”
A copy of the call for evidence is available to download from the PLSA website here. The call for evidence will close on 15 July 2016 and responses should be sent to DBTaskforce@plsa.co.uk. The Taskforce will present interim findings at the PLSA's annual conference in October 2016. |
