Pensions minister Ros Altmann says defined benefit pensions schemes are not in crisis, despite record funding deficits in the wake of the Brexit vote.
According to data from consultant Mercer, the FTSE 350’s DB pension liabilities outweigh assets by a record £119bn following the referendum.
At the same time, the Government has proposed allowing trustees of the Tata Steel pension scheme to override rules to slash liabilities in the hope of attracting a buyer for the troubled firm.
MPs have also launched an inquiry into the sector.
But, speaking at a Headlinemoney event this week, Altmann said: “I certainly don’t believe there’s a crisis in DB schemes.”
She added: “All schemes, even if they are severely underfunded, have enough money to pay pensions over the next 20 years or so.
“The crisis you might think about is the mark to market measure of liabilities today as a result of the exceptional level of interest rates that we have. However, it’s important to look at the long-term. If a scheme is already closed it will be in run off. In 10 or 20 years’ time, it is difficult to imagine there will be thousands of employers still running those schemes. We need to work out the best way forward.”
Altmann also hit out at schemes’ bond-heavy investment strategies, suggesting they take more risk to close funding gaps.
She said: “Managing risk and return is really important. That’s different from saying you need to move into gilts. 15 or 20 years ago DB schemes had heavy equity investments but we’ve now moved to another extreme where the idea is to take no risk. But if you have schemes in deficit and you are just matching your liabilities you are not overcoming deficits.
“We’ve got more than a trillion pounds of assets and I would encourage us to be looking to use some of those for infrastructure and social housing projects. Measures that would not only help the pension scheme but would also help the economy.”
Cold call ban not the answer
Scams involving pensions have been in the spotlight after the pension freedoms gave crooks a new inroad to potential victims.
But the pensions minister said simply banning cold calling would not solve the problem.
She said: “With these kinds of cold calls it’s very difficult for the Government to do anything. We are trying out best and catching lots of them. We have a whole team of people and all sorts of organisations are coming together but a lot of these are coming from abroad.”
“We’re putting in place now a system where the number comes up when you get a call for any company that is registered over here. But many of these are coming from abroad and they are determined to scam you out of their money. It’s a question of making the public have the understanding that this isn’t normal.
“I’ve looked at making cold calls illegal but if they come from abroad there’s nothing we can do. We could put in the legislation, it would take legislative time away from other things, but actually it probably wouldn’t solve the problem. You can tell people it’s illegal but they will still take the phonecall.”