Shutting the stable door?


stable door 2

We probably know more about the solvency of our defined benefit pension schemes than we have ever done. They are subject to rigorous examination by Experian who stress test them for failure to calculate their levy to the Pension Protection Fund.

The Pension Protection fund update their “state of the nation” PPF 7800 index on the second Tuesday of every month, and the PPF and Pensions Regulator jointly publish The Purple Book each year.  If you look at the PPF website, you can read this month’s and every previous month’s assessment of the solvency of our pensions.

Here are this month’s findings

  • The aggregate deficit of the 5,945 schemes in the PPF 7800 Index is estimated to have decreased over the month to £270.2 billion at the end of April 2016, from a deficit of £302.1 billion at the end of March 2016.
  • The funding ratio improved from 81.0 per cent to 82.6 per cent.
  • Total assets were £1,280.0 billion and total liabilities were £1,550.2 billion.
  • There were 4,804 schemes in deficit and 1,141 schemes in surplus


So what is this investigation about?  There are plenty  large DB pension plans waiting to fall into the PPF as soon as the employer loses heart. British Airways has a recovery plan every bit as long as BHS’. The likes of Mike Ashby can hardly be considered a better risk than Philip Green and there are plenty of strategic businesses with top heavy pension schemes that we know all about. British Telecom has for years been considered an insurance company that knows a lot about telephones.

There are many ways to manage the run off of our corporate pension legacy, we have chosen the PPF as the best of them. I happen to think it is the PPF not auto-enrolment which is Britain’s great pension success story.

But we seem intent on undermining its authority , first by consulting on ways to get round using it and now on  how ruined it is. The PPF is not in ruins, it is in good shape as  Alan

Rubenstein robustly pointed out in a recent DWP Select Committee meeting. This Guardian report is worth reading if only for Frank Field’s apocalyptic warning

“Pension law and regulation must urgently adapt to the issues of the future, rather than the problems of the past. We should be under no illusions that British Steel is a special case. The whole savings edifice is in danger.”

What is this about? Nothing has changed , the information is in the public domain, the PPF is working as it should and the nation is saving as it hasn’t been saving for decades.

The impending investigation by the DWP Select Committee can only tell us what we already know but – to have political capital – it will have to tell the sad story of the death of corporate defined benefit schemes in a new and sensational way.

Frank Field has championed our corporate Defined Benefit schemes as a national treasure, such romantic language suggests an emotional rather than a rational attachment to the culture that produced and maintained them. I am cynical about the motivation behind these schemes that seem to have served the executives better than blue collar workers.

The PPF clips the wings of the best pensioned and protects 90% of the prospective pensions of the less well pensioned. The BHS scheme has (according to Rubenstein) no members in its staff section who will have capped benefits, all capped members are in its executive section.

It protects the pensions of those in retirement who have most need of certainty (having least means of working).

If we are to have an investigation, it should be into the corporate governance that allowed the deficits to become so great and that’s a matter for BIS and not for the DWP. The culture that allowed Maxwell and Green the freedom to put self-interest in front of the interests of the pensioners is still endemic in British business and till it changes, we will continue to see a decline in employer involvement in the pensioning of staff.

If we are to truly restore confidence in pensions, we need employers to fall back in love with the process of providing staff with proper retirement financing and that will only happen because employers want to.

We need better pensions, better processes and we need a corporate culture that thinks long-term. It means starting with the big companies and trickling down (precisely as is happening with auto-enrolment). It also means engaging employers properly with what constitutes a proper contribution rate for staff to get a decent retirement. These discussions can be started now , but they become relevant later- when we have got the platform of auto-enrolment fully in place.

Till then, let’s hope the Select Committee leaves the PPF and tPR alone and focus on making auto-enrolment work.

The damage to DB plans was done many years ago, the stable door has been open a long time. Those horses that saw the opportunity bolted. Most large companies chose to stay within the stable and are managing off their liabilities in an orderly fashion. This is not where the Pension Regulator’s Corporate Plan focusses, not should it be. They and the PPF  have a way of dealing with things that should be allowed to continue without interference.


Frank Field- Chasing Hares

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Shutting the stable door?

  1. George Kirrin says:

    The deficits became so great because of the actuarial profession’s myopia with using gilts-relative discount rates in almost all circumstances.

    This led in turn to actuarially-biased “investment” advice to de-risk assets into gilts-relative places.

    There is an alternative – prudent discount rates based on (a prudent estimate of) expected returns – but few actuaries seem prepared to allow at least some of their clients to use such methods.

    Yes, there’s moral hazard because some employers could lean on trustees and their advisers to introduce imprudent assumptions; but strong trustees and stronger advisers could resist this and still manage their liabilities and obligations in an orderly, and prudent, fashion.

    It’s too late now.

  2. henry tapper says:

    I’m not sticking up for or sticking the boot into actuaries. They would blame accountants and no doubt the accountants would blame them back. The truth is that when we lost confidence in long term assumptions , we commenced the death spiral. The accountants would say “not a moment too soon”, you and I might have a different view

  3. Gerry Flynn says:

    How many billions did BT save themselves by going on a contribution holiday during the 80/90s?

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