Actuaries are urging employers and trustees to move to risk-sharing schemes to stave off a second wave of final-salary scheme closures to future service accrual.
Speaking at the National Association of Pensions Funds Conference in Manchester last week, two senior actuaries warned of the likelihood of further final-salary scheme closures despite recent reductions in scheme deficits.
Association of Consulting Actuaries chairman Ian Farr and Hewitt actuary Richard Mulcahy believe the wholesale adoption of defined-contribution schemes is not the answer but that the solution lies in making legislative changes to encourage the introduction of more shared-risk schemes.
Farr said: “Risk-sharing schemes can offer the safety-valve to provide the degree of cost and benefit predictability that employers need while providing members with a more stable pension than defined contribution, with this pension continuing to be indexed preand post-retirement.”
Farr and Mulcahy said the Government’s deregulatory review offers the opportunity to implement the legal changes necessary to encourage the development of more shared risk schemes.
They argued that their development of shared-risk schemes is currently restricted as most have to be set up under the defined-benefit pension regime.
In the ACA 2007 pension trends survey, which is published this week, 72 per cent of employers surveyed favour Government pension policy promoting risk-sharing schemes rather than policies that place 100 per cent investment and longevity risk on members by using DC schemes.
Farr said: “This is not pie in the sky. Shared-risk-type schemes are prospering in the Netherlands, where occupational defined-contribution schemes are much less common as a result. And what is the alternative – the managed decline of a once excellent and growing private pension system? Our generation will never be forgiven by today’s and future generations if we simply fiddle around while Rome burns. There are clear challenges to address that require bold and innovative solutions.”