Pension Risk Sharing – they’re all at it but us!

Oh dear!

News that the Japanese have gone all defined ambition did not go down well. Infact it went down like Japanese Knotweed at the Chelsea Flower Show.

This is not surprising; to the pension purists, the arrival of schemes that walk the middle way between DB and DC would sully their pension landscape. Those who seek to profit from the back-end of DC, especially the insurers and SIPP providers looking to “decumulate” our savings, collective risk-sharing is a direct threat to their business model. To the pension experts, led by  John Ralfe, anything not backed by gilt or a high-grade corporate bond, is heresy.

Ralfe’s arguments are intellectual and founded in economic theory, the insurer’s behavioural and founded in commercial greed. Both are deeply and widely held.

It is ironic that news of the Japanese risk-sharing plans is brought to us by Willis Towers Watson (WTW) who are perhaps the UK’s most powerful exponents of pension de-risking (AKA extinction of private DB liabilities over time).

I have published two widely distributed blogs on here criticising WTW and this will not be a third. Well done WTW for publishing developments in Japan and in particular for this paragraph from its report.

Companies should start to analyze how they may take advantage of this new opportunity, including potential implications for the company (e.g., cost, accounting) as well as for participants

That had WTW’s former UK guru spluttering

Of course the current Government couldn’t and didn’t. Within months of the passing of the Pension Act 2015, then Pension Minister Ros Altmann stopped the secondary legislation for risk-sharing schemes. We have Defined Ambition in principle but not in practice.

This under-reported U-turn has meant that instead of having risk-sharing both in accumulation and decumulation, we have the binary choice between DB and DC that creates the industrial conflict between Royal Mail and the CWU. It is why BSPS is having to set up a DC scheme for its veteran employees. It is why no new hires in the private sector get a defined benefit accrual.

It means that we have thousands of people taking choices on their “pension freedoms” without proper advice. We have people becoming their own CIO and actuarial functionary who are financially witless. We have pension scammers, industrial scale panic-selling of DB transfers and a public who has never been so excited/confused/vulnerable.

The failure of the British Government to see through the legislation set in place by the Coalition, that would have allowed us to risk share as the Canadians and Dutch do – and the Japanese will do by the end of the year – is a great lost opportunity. Ros Altmann has a lot to answer for -as I keep telling her.


All is not lost.

If I was the CWU, I would be printing out that WTW article and distributing it to every member of the Royal Mail Board. If I could get an audience with Moya Green, the Royal Mail’s brilliant (female) CEO, this article of WTW’s would be the first thing I’d put under her nose!

The CWU’s proposal to  Royal Mail do not rely on any of the half-completed regulations for DA, they use existing regulations to minimise the risks to Royal Mail of offering future DB accrual and scheme pensions to Royal Mail employees. To all intents and purposes they offer Royal Mail a CDC scheme.

All is not lost- if Royal Mail can have the courage that the Japanese have, if they can – in place of strife – share pension risk.


Further reading

Here- again – is the link to WTW’s excellent report; WTW doing just what a global consultancy should be doing – thank-you!

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in actuaries, advice gap, pensions and tagged , , , , , , , , , . Bookmark the permalink.

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