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Tories to look at basic DB plus DC

The Conservatives are looking at proposals to encourage employers to provide a basic defined-benefit pension lifting employees out of means-testing, with a DC scheme bolted on for additional contributions.

As part of the Opposition’s scrutiny of Government pension strategy, the Tories are looking at proposals to create hybrid defined-benefit and defined- contribution schemes.

Hermes Equity Ownership Services senior adviser David Pitt-Watson has drafted a paper for the Conservatives on the future of DB schemes, which suggests that the fund management industry should design low-cost, low-risk products to create pensions such as the DB schemes available in Holland.

Pitt-Watson says a consensus is needed to take forward any revival of DB schemes and suggests assembling organisations such as the Confederation of British Industry, the National Association of Pension Funds, the Trades Union Congress and the Financial Reporting Council to agree “a plan of action to promote DB pension savings”.

Shadow pensions minister Nigel Waterson says the Tories are talking to the Association of British Insurers and the NAPF and are looking at a range of ideas but are not ready to announce anything specific yet.

He says: “We are looking very hard at all sorts of ideas in terms of hybrids between DB minus or DC plus to try and find ways of sharing the risk between employers and employees.

“There is a different situation in Holland but they do have things like conditional indexation, which we are quite interested in. Then in the US, they have got these cash balance schemes, where again they are trying to share the risk between emp- loyer and employee so we are looking at all these models to see what is the best way forward.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Would they stay out of it! The principal reason for pension scheme membership’s decline is that from one government to teh next no body knows what the pensions regime is going to be. If you constantly change it so that one generation can not guide the next and so that professional advice is required for the lay person before they can make a contribution then you will FFF it up once again. Pensions Simplification? It is a mess and if the Tories shake it up again it will be an even bigger mess. Leave it alone and let the IFA’s deal with a known mess for clients and expand our spher e of influence and thereby increase scheme membership. Every time that we have to expalin the ramifications of a shake up by an incoming government is time and money and effort completely wasted. Are they power mad-stay well out of it-leave it alone-get on with improving the lives of citizens through improving competion, improving the environment, improving civil liberties and reducing povert and crime.

  2. 20 years ago I formed the view that the very basis on which DB schemes were set up was going to lead to trouble and decline.

    Why is it that of the initial funding rate to support an agreed structure of benefits, the employees’ rate was fixed whilst the employer had to carry the open ended commitment of the balance? Crazy and, of course, made worse and worse by Union greed (pressing for any surplus occasionally arising to be applied immediately and in full to enhance benefits ~ never mind about possible lean times ahead, that’ll be the employer’s headache) with Government interference and endless red tape on top. Add to that the increasing cost of providing pensions for life and the result has been DB Schemes have become completely impossible for most companies to maintain.

    The idea of reviving DB schemes is laudable but highly unlikely to happen. They’re just more trouble than they’re worth. Were the past 25 years of interventionist legislation to be unravelled, a few employers might just be tempted to give DB another go but not many because as soon as another Labour government got it they’d promptly start to mess everything up again.

    Were I an employer of any size, I’d be extremely wary of having anything to do with a DB pension scheme. The world is a changed and ever changing place and you cannot wind back the clock. And anyway, were the old days really as good as we like to remember them?

  3. DB pension schemes, whilst well intentioned, have the potential to bankrupt the country. If one were to add up all public and private sector deficits in the uk, it would make the banking bailout seem small beer!
    Dont’ worry our very honourable Mr Brown, who is responsible for devastating what was once an excellent pensions environment, will continue to reap an excellent pension whilst the rest of us suffer. This is a disgrace. People wake up! It impacts on all of us. Meanwhile the Pensions Regulator and all such mandarins benefit with salaries and attractive DB schemes which the tax paying business can no longer afford to provide to hard working employees.
    A recent report stated that empoyees would need to contribute 42% of salary to benefit from the same level of pension as senior public sector employees. I feel ok about this because I think that they have all invested personal wealth to create employment for lots of people.
    Oh my God a pink elephant has just flown past my window!! Sorry it was Gordon Brown in a tutu.
    DB pension schemes – oh yes what a great idea after labour’s mismanagement. Just ask Willie Walsh how happy he is with BA’s and how it has helped his negotiations with Iberia!
    Watch this space – It’s not a happy ending

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