Today (Thursday 9 June) the PLSA's defined benefit (DB) Taskforce opened its call for evidence. Established in March 2016 in response to the increasing number of challenges facing defined benefit pension schemes, the Taskforce will assess these challenges and identify possible solutions.
Defined benefit provision is a large part of the pension landscape in the UK and will be for some time, with around 16 million members and over £1 trillion of assets. However, defined benefit schemes are swimming against the economic and social tide in order to make sure members’ benefits are paid. This can be illustrated by the fact that the deficits are close to £300bn1 and recovery periods in defined benefit schemes are not shrinking2 despite the extra contributions employers have made, including £44bn3 over the past three years.
It is important we take action to protect members’ benefits against these wider economic and social factors and the Taskforce will work to ensure we have a full understanding of the problems in order to present responses to make the system more sustainable.
The Taskforce suggests three areas in which it believes solutions may lie:
- Efficiency − across all functions from day-to-day administration to the appointment of fund managers and how investment strategies are implemented.
- Capital allocation – scheme sponsors are diverting investment capital into DB schemes to address rising deficits.
- Member benefits − funding challenges which are pushing employers into unfair trade-offs between different employee groups and the impact of binary legislative outcomes which result in DB member benefits being paid in full or falling into the Pension Protection Fund (PPF).
Ashok Gupta, Chair of the Taskforce, commented:
"The recent news about the British Steel Pension Scheme shows how important a role DB schemes play in our wider economic and social structures. This recent case also illustrates just how strong the tide is against DB schemes and their sponsoring employers.
"Schemes, trustees and employers have worked extraordinarily hard to stay ahead but it's increasingly clear that even for closed schemes to survive a radical re-appraisal of how they operate is needed. That is an extremely complex task as DB schemes are different things to different people. So we want to hear views from everyone who has an interest in DB schemes − from scheme members through to trustees, sponsors, regulators and government."
Joanne Segars, Chief Executive of the PLSA said:
“The challenges facing UK DB schemes are many and wide-ranging. Taken individually or collectively these issues have often seemed too complex or enormous to address, however the need for a clear understanding of these issues and long-term solutions for all DB schemes and their employers has never been clearer.
“I would encourage anyone with an interest in the future of DB provision to engage with this call for evidence.”
A copy of the call for evidence is available to download from the PLSA website here. The call for evidence will close on 15 July 2016 and responses should be sent to [email protected]. The Taskforce will present interim findings at the PLSA's annual conference in October 2016.
The DB Taskforce was established in March 2016 to undertake a review of the challenges currently facing DB pension schemes and make recommendations to Government.
The Taskforce is led by Ashok Gupta, Joint-Deputy Chair of the Bank of England’s enquiry into pro-cyclical investment by pension funds and insurance companies. He is joined by experts from across industry and academia.
DEFINED BENEFIT TASKFORCE MEMBERS
- Ashok Gupta − Chair
- Duncan Buchanan − Partner, Hogan Lovells, Immediate Past President, Society of Pensions Professionals
- Frank Johnson − Independent Non-Executive Director at First State Investments, UK and at GO Investment Partners, Chair Pensions and Lifetime Savings Association DB Council
- Paul Johnson – Director, Institute for Fiscal Studies
- Jackie Peel − UK & Ireland Benefits Director, Mars, Pensions and Lifetime Savings Association DB Council
- Stephen Soper − Senior Pensions Adviser, PwC
- Paul Trickett – Chairman, Trustees of the Legal and General Mastertrust and Zurich UK pension scheme
- Kevin Wesbroom - Senior Partner, AonHewitt
- Lesley Williams – Group Pensions Director, Whitbread, Chair, Pensions and Lifetime Savings Association
The terms of reference and further details can be found on the Taskforce section of the Pensions and Lifetime Savings Association website here.
PENSIONS AND LIFETIME SAVINGS ASSOCIATION
We’re the Pensions and Lifetime Savings Association, the national association with a ninety-year history of helping pension professionals run better pension schemes. With the support of over 1,300 pension schemes and over 400 supporting businesses, we are the voice for pensions and lifetime savings in Westminster, Whitehall and Brussels.
Our purpose is simple: to help everyone to achieve a better income in retirement. We work to get more money into retirement savings, to get more value out of those savings and to build the confidence and understanding of savers.
Lucy Grubb, Head of Media and PR, Pensions and Lifetime Savings Association
T: 020 7601 1726, M: 07713 073 023, E: [email protected]
Eleanor Carric, PR Manager, Pensions and Lifetime Savings Association
T: 020 7601 1718, M: 07825 171 446, E: [email protected]
Kathryn Mortimer, Press Officer, Pensions and Lifetime Savings Association
T: 020 7601 1748, M: 07901 007 713, E: [email protected]