PLSA launches DB taskforce as deficits spiral

The taskforce, chaired by Ashok Gupta, a member of the Financial Reporting Council, wants to “help ensure DB pensions are sustainable for the long term”, the PLSA said.

The taskforce is made up of pension professionals from different backgrounds including legal, consultancy, actuarial and trustee boards.

It plans to seek views from funds of all sizes as well as employers, regulators, government and intermediaries on what the solutions to the problems facing DB schemes should be, looking to make recommendations to the government, regulators and the wider industry about possible solutions.

Giving some focused attention to closed DB schemes in particular could bring some added value, as that tends to be a neglected area of public policy

Steve Webb, Royal London

Challenges ahead

Initial findings are planned for the summer and a final recommendation will be announced at the PLSA’s annual conference in October.

Helen Forrest Hall, PLSA DB policy lead, said the taskforce aims to articulate some of the challenges facing DB, including their scale and consequences for the broader economy.

“It’s quite easy to be too scared and not be specific enough about their impact,” she said about the issues DB schemes are grappling with.

She cited substantial deficits, low gilt yields, fears about the global economy and improving longevity as the main challenges.

A paper from the Pensions Institute published in December entitled ‘The greatest good for the greatest number’ put a figure to the scale of the challenge. It found that around 600 private sector DB schemes might never be able to pay pensions in full.

Forrest Hall did not predict what solutions the taskforce might present, saying there is “no silver bullet”.

“We’re quite open-minded at the moment,” she said.

Janet Brown, partner at law firm Sackers and PLSA DB Council member, said there will not be a single solution that will help every struggling DB scheme.

“It’s going to be small things that will have an impact for some schemes,” she said. “It’s tinkering around the edges that can often give people breathing space.”

She said possible changes could involve recovery periods, or benefit changes such as removing the requirement to have statutory pension increases.

Achievable goals

But Roger Mattingly, director at professional trustee company Pan Trustees, said while the idea of making DB more straightforward was attractive, it was about “working out if the objectives are achievable”.

If they are, he said, “it’s well worth doing; if they’re aspirational, it could just be confined to yet another effort to simplify pensions”.

Mattingly added that simplifying DB pensions was a project doomed to failure.

“If the expectation is to make it straightforward, I can’t see that being achieved, it will always be complicated,” he said, mentioning as an example the complexity of guaranteed minimum pension equalisation.

“It’s not for the fainthearted, but doable at the moment, with all the restrictions, regulations and complications,” he said.

“The challenge is making sure that you’re on top of that ever-changing landscape.”

Steve Webb, director of policy at insurer Royal London, said identifying problems or potential for government intervention on closed DB schemes could prove positive.

“Giving some focused attention to closed DB schemes in particular could bring some added value, as that tends to be a neglected area of public policy,” he said.

Webb said government has tended to view the process of run-off as largely a matter for schemes and employers.

“But clearly the government can and does make decisions which have an impact on closed schemes as well.”

Rekindling defined ambition

Jon Hatchett, partner and head of the corporate consulting practice at consultancy Hymans Robertson, said he is supportive of the idea of a DB task force.

“I think DB schemes are in a challenged place,” he said, but added: “Whether it’s successful will depend on how much the government is in listening mode.”

He said one of the biggest challenges facing DB schemes is funding deficits, despite millions in contributions from scheme sponsors.

“It’s cost more than anyone ever imagined,” he said. “Private sector companies have largely had enough.”

He said the taskforce can help the industry focus on how it tackles risk management and rekindle a debate on benefit provision.

The launch of this taskforce could also put more energy behind defined ambition schemes, according to Hatchett, to end what he termed a “dichotomy”of expensive legacy DB schemes and low-contribution defined contribution schemes.