Mark Twain reported that reports of his death were exaggerated. A journalist had in fact mistaken his state of health for his brother’s (who was in a much worse way).
The same could be said for the Open Defined Benefit Pension Scheme. There are 6.5m Britains accruing benefits in funded open DB schemes. We do so in schemes as various as USS, RailPen, BBC, Pensions Trust, Saul, Unite, Unison and the Local Government Pension Scheme.
But the remaining DB pensions are in terminal decline and will find their everlasting resting place with an insurer, super fund or PPF. We call these pensions closed, their mantra is de-risking and they really are on the way out.
Confusing Mark Twain and his brother is as bothersome as confusing open and closed DB, which is why the House of Lords voted through an amendment to the Pension Schemes Bill calling for the two types of schemes to be treated differently.
Dogmatism doesn’t help
Open pensions cause trouble. In our flat, I only have to say “future accrual” and the wrath of Stella is visited upon me. If this blog is spotted on social media by the financial engineers, my timeline will be subsumed by vitriol.
In my day as a consultant, I often heard it said that the Pensions Regulator policy teams were for future accrual and the case workers against it. There appear to be few people who swing both ways . This is a shame,
For dogmatism is not helpful , many schemes have no choice but be open. Take RailPen which is in fact 107 schemes under a single trust, 45 of which are open to future accrual. In this wonderful article by my friend Giannis Waymouth, you can understand why many railway companies keep their scheme s open as a condition of tendering for and keeping rail contracts. Sometimes you have to be pragmatic and so long as benefits are safeguarded , so there will be future accrual.
RailPen were the driving force behind the Bowles amendment which , as it stands, means that the it can invest differently for its 45 open schemes than its 62 closed ones. I met the Railpen team who helped Sharon Bowles with her amendment and was struck by how undogmatic they were.
Perhaps this was why they got so many of the Lords and Ladies to support the amendment. While some who spoke for the amendment took the whip and voted against it, the combined power of Baroness Altmann and Bowles seems to have won the day and genuinely surprised the Government.
The task now switches to the Commons who will debate the amendments in September. The message from Railpen is simple, they aren’t looking to change legislation, but clarify it. They accept that the wording in the Bowles amendment could be improved and they are seeking a meeting with the DWP to see if a wording can be found that might prove acceptable to Government and regulator. Clearly what is needed is consensus not an argument, with its current majority the Government could chose to undo the Bowles Amendment if it chose to.
Of course there are plenty of objections to the amendment. One of my friends succinctly summed up why he considers the House of Lords’ Pension Schemes Bill amendment 71 bad news
1. The bird has flown
2 it is flawed as an amendment.
3 adds another conflict to TPR objectives.
4 so needs flesh on HOW to do it.
5 needs anti abuse – add 1 member and ease requirements
6 does it address the real issue of sponsors being on the hook?
7 it is the government’s role to encourage any particular sort of private provision. Not the regulator.
It would make a lot more sense to respond constructively to the consultation on the code.
I look forward to hearing the power of Keating/Clacher refuting these arguments. But my trust is in the calm and persuasive of the Railpen team I met. It is good to know that pensions have such people in them.