Will pension freedoms be the death of Defined Benefit?

LAst supper


I thought it was the last supper (or at least the last pension playpen lunch).

We had twelve men around the table (no women) and there was sombre expectation as we considered the impact small changes in tax legislation arriving next month, would have on people’s attitude to their pension saving.

We had no Messiah but thankfully no Judas either. We had George Emsden (Cancer IFA), Tony Woodward, Con Keating, Tom Hibbard, Blake Dempster, the Pension Plowman, Mark Scantlebury, Paul Kemlow, Neil Morgan,Parvis Jamieson, Ralph Turner and we had a lot of fun.

As Con kicked off, predicting someone’s death while attending their funeral might be considered redundant. For most people, building further rights to a defined benefit pension will mean joining a Government sponsored scheme. For those with rights only to state pensions – whether the single tier state pension or Government unfunded schemes, Pension Freedoms are, for now, irrelevant.  This statement should be a cause for concern to those in Government as pension freedoms are exacerbating the pensions apartheid between those who have a AAA promise from the state and the rest of us (who have to live on our wits).

And it was this dynamic between personal empowerment to use freedom and choice and the inability of many people to take sound financial decisions, that we returned to again and again during our lunch.

Much of the talk was about the reported 8% of Britain’s DB membership who are contemplating taking their DB benefits into a DC plan to liberate their pensions to do what they want to do with them.

There was a general feeling that unless we moved on from a simple analysis of critical yields to a more holistic approach that addressed people’s personal objectives in retirement (and a proper understanding of risk), transfers were generally dead in the water.

Most interestingly, the conversation turned to that segment of DB membership that had most to be concerned about DB security, those with pensions above the PPF threshold of £32,000. It was reported that some advisers are talking to such people about “top-slicing” the transfer to leave sufficient to ensure a full PPF pay-out. It would have been interesting to have had Alan Rubenstein in the room at this point.

Parvis Jamieson remarked cogently that no one would take a transfer of benefits secured by the PPF for anything but “sentimental” reasons. Seldom has that word been used so appositely! It is unlikely that any transfer value less than £900,000 (28 x £32,000) could be taken unsentimentally (that is without regard to subjective rather than purely objective criteria).

Which obviously made us think!

This is what is happening in the UK right now, people are thinking about their pensions both pre and post the introduction of the Freedoms and pre and post the general election.

The likelihood of the tax rules governing contributions and also benefits changing after May is increasing by the day. Labour’s proposals to use tax savings on pensions to pay for student education sounds great on a political rostrum but filled the room with dread.

It is one thing to change pension tax relief to be more fair to those in pensions, it is another to use pensions as the piggy bank to fund vote-winning election promises elsewhere.

By the time we meet again (April 13th as the 6th is a bank holiday) we will have the freedoms in place. These freedoms arrive on the 6th.

By the following meeting (May 11th as 4th is a bank holiday) we will have a new Government (or be arguing who will work with who). The general election falls on the 7th.

The impact of these two events is likely to profoundly effect the DB schemes we still operate in this country.

Summing up the mood of the meeting, it felt like we were feeling the pulse of a cadaver. It is very hard to hurt a dead man. The discussion suggested that the pension freedoms may speed up the rate at which the carcass decays and may infect Government schemes which so far have remained healthy (albeit with the support of an increasingly reluctant tax-payer).

But there was no great rejoicing, this meeting was more a wake than a celebration. There was no sense that monies flowing through DC into people’s pockets would solve the big societal problems of an ageing population. Indeed the meeting closed as it started with an assertion from Con.

Pension freedoms will not be the death of DB but will expose the calamity that is DC.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in advice gap, pension playpen, pensions, Pensions Regulator and tagged , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

Leave a Reply