Criticism Of The Current DB Landscape

19 May 2017

meeting and piggy bank.jpg Earlier this year, the government produced a wide-ranging consultation about the future of defined benefit pension provision. The consultation, which was undertaken by the Department of Work and Pensions asserted that there is no affordability crisis in the defined benefit sector.

"The available evidence does not appear to support the view that these pensions are generally ' unaffordable' for employers. While DB pensions are more expensive than they were when they were originally set up, many employers could clear their pension deficit if required."

The consultations invited responses, the deadline of which was 14 May. This week has seen some of these responses made public, by both the former pensions minister Baroness Ros Altmann and the Pensions and Lifetime Savings Association (PLSA). Both have disagreed with the government's belief that there is no funding crisis.

"UK defined benefit pension schemes are the most expensive in the world. Over the past few decades, employers who started offering pensions to their staff on a 'best efforts' basis, have ended up being forced to take on more and more expensive liabilities. The DB landscape is not sustainable as it currently operates. There needs to be more leeway for employers to manage their liabilities."

The Pensions and Lifetime Savings Association in a statement this week said:

"The analysis carried out by the [PLSA's] DB Taskforce and feedback from our members indicates that the affordability challenges facing DB schemes and employers are much more significant than the position set out in the green paper," the trade body said. "Some of the analysis presented appears overly optimistic. In particular, the assumption that employers can continue to pay deficit reduction contributions at current levels for the foreseeable future, given the wider economic challenges."

Former pensions minister Steve Webb was also critical of the paper in his response.

"This must be one of the 'greenest' Green Papers in living memory. Despite months of public debate led by the Select Committee and the pensions industry, the government's own thinking does not seem to have advanced significantly."

The consultation by the Department for Work and Pension was carried out in response to several high-profile pension scandals including that of British Home Stores and British Steel.

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