There has been a huge amount of talk about the challenges facing DB schemes. Jonathan Stapleton asks if we are really facing a crisis and, if so, what needs to happen.
Is there really a crisis facing defined benefit (DB) pension schemes?
This may seem like an odd question - especially given the fact a slew of reports and papers have been published over the past 12 months looking at how such a crisis can be solved, including several reports by the Pensions and Lifetime Savings Association's (PLSA) DB taskforce and the Work and Pensions Committee as well as a green paper on pensions.
But, while some schemes are undoubtedly 'stressed' (whatever this actually means), there doesn't seem to be widespread consensus that the system itself is fundamentally in crisis and that immediate action is needed to rectify the situation.
As Baroness Ros Altmann writes in an article for Professional Pensions, the government and regulator are rather sanguine about this - believing that most employers could cover deficit payments with just one year's dividends.
But, as the PLSA DB taskforce notes in its latest report, scheme deficits have remained stubbornly at around £400bn, despite £120bn of special contributions being pumped into funds over the past 10 years.
And PLSA analysis of The Pensions Regulator data and Pension Protection Fund figures shows there are currently around three million people in DB schemes with only a 50% chance of seeing their benefits paid in full.
So, coming back to my original question, is there a crisis facing DB schemes?
Because if there is, then the government must take some immediate and radical action to address the issue - actions that could well include some of the suggestions put forward by the PLSA's taskforce.
Yet such a move will be politically brave as it will inevitably see losers - members who could see benefits reduced as well as shareholders who could see significant loss of equity.
Whether the government is able to take such a brave decision is another question altogether.
Jonathan Stapleton is editor of Professional Pensions
Email him at: [email protected]
Follow Jonathan on Twitter at: https://twitter.com/jonstapleton
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