Don’t take your pension for granted



Of all the complacencies I suffer from, the one I find easiest to fall back on is that when lock-down ends, the world will return to where it was in February.

This pandemic is not a distraction

It is easy for me to think that nothing fundamentally has changed. So far me and my family have been shielded from the worst impact of the virus and I have not lost any close friends. Many of us will be considering the future as business as usual.

This would be a failure of imagination and of empathy. Because lucky as I have been (so far), 20,000 have died in hospitals and up to half as many again in homes.

Millions are not working and hundreds of thousands of businesses are under threat of collapse. The oil price went negative as traders paid for people to store a commodity no-one wanted anymore.

Things are not going to be the same for transport, for oil , for retail, for higher education , for pubs, restaurants and a whole host of leisure businesses.

To describe Covid-19, as the chair of a meeting yesterday did – as a “distraction“, is just not right.

Things will not be the same for pensions

Covid-19 is teaching us that certainties like the capacity of our largest companies to pay their staff , cannot be relied on, when those companies cannot trade. The state is paying 80% of the wages of perhaps 9 million workers ; seven out of ten employers have furloughed part of their workforce.

It looks very likely that unemployment is going to be high for some time to come, many people’s expectations for their wealth in retirement will suffer as they will be furloughed from pension contributions.

Those close to retirement will be seeing their pension pots reduced by up to 20% due to market falls, many awaiting the commencement  of their defined benefit pensions will be anxiously hoping their pension does not enter the PPF , resulting from a failure of their  scheme’s sponsor.

A couple of years back I wrote a blog , stating that universities don’t go bust.  I still hold to that position but I now question my confidence in the capacity of the universities to meet future obligations to USS. John Ralfe and Norma Cohen can point to my blogs about USS and ask whether I would write them today. I would have to say that my confidence in many DB scheme’s ability to meet future obligations has been shaken.

To suppose that Covid-19 is a “distraction” to the business of providing pensions is complacent. We are going to have to radically rethink the system of guarantees that underpin defined benefit pensions if we are to have the flexibility to provide security of work as well as a secure retirement.


A re-think of future accrual

We must re-think the nature of the promises we are making to ourselves in the light of the new economic circumstances this country finds itself in.

This may mean linking the future accrual of pension rights not to formulae established in the years of relative certainty, but to the capacity of organisations to meet those obligations going forward. For funded pensions, it means paying benefits linked in part to market returns, something that those reliant on DC pensions know all too much about.

So far, the calls for the limitations on future accrual have focussed (predictably) on the dismantling of the triple lock. This would hurt those on low retirement incomes hardest and have relatively little impact on those with wealth.

We are going to have to take a long hard look at the system of tax-relief that supports both our DC and DB pensions and which distributes public funds upwards towards the wealthiest in society. And we are going to have to ask those with guaranteed benefits to see further accrual limited by the capacity of the sponsor (typically the tax-payer) to meet the bill.

In other words, those things that we held true before the pandemic, cannot be held on to today. CDC as a means of future accrual , may be the radical alternative for the USS , LGPS, even the unfunded public sector schemes. The PPF may need to offer CDC decumulation (perhaps as a member selected  alternative to the haircut of guaranteed pensions).

These radical ideas appeared heretical (even to me) before March. But the extent of the change we are currently going through, a change which looks set to continue for months to come, makes it clear to me that this is not some “hiatus” or distraction, but a rubicon in pension provision. Once we have crossed the rubicon, we will be in a new place with new rules, and that means re-thinking all the old certainties.


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About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in age wage, CDC, dc pensions, de-risking, pensions. Bookmark the permalink.

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