On the go: The government should accept that not all defined benefit pensions are affordable and begin taking radical steps to allow employers to flex their promises, according to two prominent professional trustees.
Chris Martin and Peter Askins, both of Independent Trustee Services, called for a rethink in a paper on pensions innovation compiled by law firm Eversheds Sutherland.
Popular measures identified by the research included a requirement for all pension statements to explain benefits in annual income terms, faster development of the pensions dashboards, and introducing a savings "rite of passage" for young people. Extending auto-enrolment to the self-employed and allowing trustees to recommend and pay for members' independent financial advisers also topped the list.
But the paper also made more radical recommendations. Despite defined benefit funding having broadly improved in recent years – the latest update from the Pension Protection Fund showed a drop to 95.9 per cent from 99.4 per cent funded on the Section 179 basis at the end of January – the ITS pair said things are not improving fast enough.
“All plans should go in the PPF now and create a sovereign wealth fund," said Mr Askins, a director at the firm.
The paper argued that a softening of DB promises is legitimate in the face of successive protections and upratings added in by legislation over the years. The result is that "many of the DB generation will get better benefits than the sponsor ever imagined", the paper stated.
“The historic options of full insurance outcomes at one end and PPF at the other drive binary outcomes; there needs to be real creativity and acceptance that in some cases promises made many decades ago are no longer affordable. There should be the flexibility to pursue other outcomes with and for members," said Chris Martin, ITS's executive chair.
Innovations suggested by participants included a renewed commitment to legislating for DB consolidation as soon as possible.
