View more on these topics

Govt fires starting gun on future of DB pensions

Pensions-savings-retirement-piggy bank

The Government has set out a range of radical proposals to ensure defined benefit schemes are more sustainable in future.

In its green paper on the sustainability of DB pension schemes, published today, the Department for Work and Pensions has kick-started the debate on managing the risks faced by DB pension schemes at the same time as securing protection for members.

The DWP says it is not convinced there is a case for changes to member benefits across the board, but there may be a need to change arrangements for “stressed” employers and schemes that demonstrate they cannot maintain their deficit reduction payments over the longer term.

Among the changes that have been suggested to shore up DB schemes include allowing schemes to “renegotiate pension promises in some circumstances”, including suspending indexed increases to payments or, as reported earlier, allowing schemes to switch from the retail prices index measure of inflation.

The paper says: “Allowing even stressed employers to renegotiate pensions and reduce benefits in certain circumstances would be a radical move and highly contentious, as it undermines the nature of the hard promise of a pension as deferred pay.

“A very high bar in terms of evidence would need to be met before such an approach could be considered. There does not seem to be evidence of a crisis in affordability across the board that would warrant such action.

“However, some commentators have suggested that in certain circumstances it might be in the interests of both the members and the employer to consider a renegotiation of the DB promise.

“A key question here is then when is the risk in the scheme too much for those whose scheme sponsors cannot show insolvency is likely.”

One of the ideas that has been floated to ease pressure on DB schemes is allowing savers to take smaller pots under trivial commutation rules earlier than age 55. This would involve reviewing the £30,000 limit above which savers are required to take advice on DB transfers.

Other measures proposed include giving The Pensions Regulator more powers to wind up schemes and separate schemes from struggling employers, as well as allowing schemes to take on more investment risk.

Also under discussion is how to create a voluntary “superfunds” system to consolidate certain schemes.



Govt looks to cut benefits on DB pensions

The Government is to announce plans to change the way defined benefit pension payments are indexed, leading to less generous income payments for members. The Financial Times reports the Government will publish its green paper on DB pensions later today, which will outline proposals to change minimum annual increases from the retail prices index to […]


Guide: how to change your auto-enrolment support

As we approach the two-year milestone of auto-enrolment, employers have had the opportunity to truly assess the capabilities of their chosen support. They are also now realising that getting to the staging date was the easy part, and that support is required for almost every aspect of the day to day running of their scheme. With the three-year re-enrolment window coinciding for many with the total removal of commission and Active Member Discounts from pension-related products and services, as well as the introduction of the pension charge cap in April 2015, many employers will have no choice but to review their support options. But, what is involved in transitioning your auto-enrolment scheme away from your current support options? This guide from Johnson Fleming aims to outline some of these key areas and provide information and discussion points on what you need to consider.

Large-cap growth alpha thesis: seeking risk-adjusted excess returns

Content supplied by Loomis, Sayles & Company — an affiliate of Natixis Global Asset Management For mutual fund investors and managers of large pensions or endowments, a major challenge is to identify those portfolio managers who are most likely to deliver superior risk-adjusted returns in the future. Understanding how an investment philosophy informs a manager’s decision […]


News and expert analysis straight to your inbox

Sign up


There are 11 comments at the moment, we would love to hear your opinion too.

  1. This at least is a tiny step in the right direction. The biggest DB problem resides with the Government. UK public sector pension liabilities make the problems in the private sector look insignificant. The public sector liability accounts for 81% of GDP. What, one may reasonably ask, is the Government doing about this? After all private sector liabilities only affect the employees The Government liability affects us all as it our taxes that go to pay the benefits.

    It is absolutely no wonder that firms are trying to extricate themselves from promises made by other managements in times long gone when economic conditions were far different. The days of open chequebook benefits have gone and it is high time employees, regulators and government recognised this – as they slowly appear to be doing so at last.

    • Harry, totally agree. What many people are not aware off is that the 81% of GDP being pension liability is not included when the national debt data is given. When the private sector prepares a budget and its cashflow it needs to include in respect of employee costs, the salary, the employers NI contribution, the employer pension contribution and any other employee benefits. This gives the cost of employing a person. I wonder how this would compare with the public sector.

    • Unfortunately Harry I think we will find that it is only those in the private sector that will see their DB pension promises being eroded

  2. Harry totally agree, one more round of protests with statements such as “fair pension for all” is surely on the cards.
    Whilst they are looking at the liability, maybe they can also look at the life time allowance and the valuation of benefits. Current arrangement of 20 times income, plus PCLS was agreed decades ago. This should be at least 40 times pension income plus PCLS to truly reflect the current market and value.

  3. Interesting. It appears the “pension promise” made by DB schemes will inevitably have to be watered down, with a subsequent reduction in future cash equivalent transfer values to reflect the less generous scheme pension.

    With CETV’s currently at historically high levels, I wonder how many deferred DB scheme members will later come to regret not taking their CETV and transferring this into their own Personal Pension Plan/SIPP?

  4. I’m afraid that the government is in La La Land and oh bugger, it’s just won umpteen Grammies so it must be true!

  5. Employers are weasels. The C onservative government are being equally weasel like with this Green paper! They both know the uproar that will be caused by suggestions of reducing pension benefits from ordinary people to fund the employer. By saying it will only be done for stressed employers is the real weasel. If this gets through you will find the definition of stressed will weaken over the years
    and it will become routine to reduce benefits. The principle of the sanctity of accrued benefits will be
    ditched especially once the European Court no longer can rule on such issues after Brexit.I think the Conservatives are trying to get a foot in the door by allowing benefits to be cut in special circumstances and when the European Court is out of the way they will be back to extending the circumstances when benefits can be cut.
    Do not allow this principle to take hold now.Accrued benefits must remain sacrosanct in all circumstances.

    • Arch

      Employers are not weasels they are businesses. The alternative in many cases would be insolvency – so no pension and no job. Not a very satisfactory outcome. Remember that these promises were made many years ago, by different managements in very different economic and commercial circumstances.

      Grown ups well know that promises are not always sacrosanct. Just look at Governments!

  6. It would be great if the government led by example and took MP’s, there advisors and everyone else involved in government out of DB schemes. But there is little chance of that they will be the last to lose this benefit.

  7. Indeed Harry, the private sector problems are tiny compared to the Elephant in the room of Public sector DB schemes, but no politician wants to touch that one, as they’ve made the public sector so huge, that their votes count for vastly more than they should be able to.

  8. Firstly offer all public sector members 3+5% and see how many opt for that – nil. Takes away the harping of the unions and public sympathy. Cap them at £26k or average earnings, take away indexation at 75. Make them all average salary.

    I’ve just solved the problem – for now.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm