From the blog: Foggy heads met misty eyes on the morning after the gala dinner at last week’s NAPF/PLSA conference, as four high-profile industry figureheads laid out their ideas to save defined benefit in the DB Debate.
The format was simple: the experts pitched their ideas to the crowd, who then voted for their favourite. The person in last place was eliminated and the remaining experts continued their pitches.
The format was simple: the experts pitched their ideas to the crowd, who then voted for their favourite. The person in last place was eliminated and the remaining experts continued their pitches.
After a second round of voting, a head-to-head decided the winner.
DB is too often characterised as the preserve of few cossetted civil servants and former MPs
Tim Sharp
Perhaps unsurprisingly, Steve Webb, former pensions minister and now director of policy and external communications at insurer Royal London, advocated the policies he had formed while in government and called on the industry not to let the 2015 Pensions Act “gather dust on the shelf”.
@stevewebb1 says that there will come a time when we want DB schemes back, so argues for protecting the 'best bits' of DB. #NAPFannual
— Anjelica (@AnjelicaSeason) October 16, 2015He said defined ambition and collective benefit made it through parliament – the former probably because nobody understood it.
"But it’s in the 2015 Pensions Act so if firms want to share risk with their employees, perhaps use an insurance provider or some other mechanism, we’ve got the basic framework," Webb said.
"And if we want to have collective benefits then actually we’ve talked through what’s the target, what’s the margin of uncertainty, what’s the funding levels. We’ve started to do that thinking."
'Honesty' on trusteeship
Next up was Bill Galvin, chief executive of the Universities Superannuation Scheme, who began by proposing a fairly straightforward idea – what he described as “honesty” about the role of trustees and the recruitment of people more suited to such roles.
Galvin questioned if the job description for the trustee or board should read: "Make macro-economic judgments… deal with complex financial engineering and capital structure problems, run a financial institution linking wholesale markets and retail distribution, take accountability for member outcomes, deal with local and maybe national social justice and labour-relations issues.”
He protested the job was often filled by “well-meaning amateurs" who were pushed for time and undertrained, with the role put together by "utterly conflicted and time-limited executives”.
Galvin implored: “If we want DB done properly, it should be about putting DB into the hands of people who can make these judgments and run these institutions as they should be run.”
Pension bonds to solve poor valuations
Perhaps the most radical proposal came from Alan Rubenstein, chief executive of the Pension Protection Fund, who said a “pension bond” should be created, available only to UK pension funds, with the proceeds going towards funding UK infrastructure.
Rubenstein set out his vision thus: “These bonds would be long term, say 30 years. They might be inflation-linked, they could be fixed, but crucially they would pay a yield that is perhaps 1 per cent above current, so instead of two-and-a-half per cent on 30-year gilts, say three-and-a-half.”
He said the higher yield could also contribute to solving the DB funding problem.
Redefine defined benefit as a benefit
Tim Sharp, pensions policy officer at the Trades Union Congress, said human resources departments should take control of DB schemes, rather than finance, as the value of DB to companies is overlooked.
Sharp said DB is too often characterised as the preserve of a "few cossetted civil servants and former MPs".
He lamented the burdensome image of such schemes: "The DB pension has in much of the private sector fallen victim to a combination of government idiocy, changing working patterns and corporate opportunism. They are now all too easily characterised as a burden on the companies that sponsor them.”
The debate ended with Webb victorious, perhaps unsurprising given his relatively recent career as a politician and positive reputation across the industry.
As he said during the debate, the foundations for his winning proposals were laid during his term as pensions minister. But whether the industry chooses to embrace them further down the line remains to be seen.
