As predicted in my recent blog , the heavens have opened and the Government’s plans for a new DB funding code and powers to the Regulator to make it stick are at risk of being deluged by industry criticism.
Not only is the DWP in a hole, but it now risks drowning. It needs a ladder out and needs no further digging.
LCP are leading the way with Steve Webb telling Telegraph readers that the Pension Fund deficit crackdown “could hit economic recovery”
Ros Altmann is no less bearish in her blog claiming in capital letters that
NEW SCHEME FUNDING RULES RISK UNDERMINING DEFINED BENEFIT PENSIONS AND WOULD COST EMPLOYERS BILLIONS OF POUNDS
Billions of pounds turns out to be at least £100 billion and that’s just LCP’s estimate for the schemes with assets of more than £1bn, (around 300 pension funds). Numbers I have seen from actuaries looking at the whole DB shebang suggest the cost could be a lot higher than that. Pensions Expert again features LCP number, but with a little more technical detail.
Jo Cumbo is also on the warpath writing in Corporte Adviser that
The DWP’s reaction has been to play the “if you’re funded properly you’ve got nothing to worry about” card, which is odd, because if all schemes were all funded as TPR would have them, they’d be investing in risk-free assets with no scope to invest for social good , environmental sustainability and with an eye to good corporate governance – which are the other Government’s big idea.
Having your cake but not eating it.
I have never seen such unanimity against a Government consultation as there is against the DB funding code and I include sections of Her Majesty’s Government in that. The Bowles Amendment and the support it has received in the Lords is an expression of the genuine concern that forcing schemes down either the bespoke or fast-track route – proposed by TPR will lead to
- closure of the remaining schemes open to new entrants
- bigger pension bills for open and closed DB shemes
- pressure to make staff redundant and reduce DC contribution rates
- constriction on investment into illiquids (including public infrastructure projects
- impaired economic recovery
This all adds up to bad news for the DWP who don’t seem to have a particularly good fall-back plan in place.
The Pensions Regulator’s recently published strategy document , which aims to position it on the side of DC “savers” is at risk of floundering as DB plans continue to dominate both tPR’s resources and the resources of sponsors who find their pension budget no longer stretches beyond funding to the bare AE minimum
The first thing that the Government should do is to listen to representations from the open DB schemes such as Railpen who have done their sums and know the impact on their sponsors of meeting the demands of the new funding code.
The second thing that the Government should do is to find an acceptable alternative to the wordings of Sharon Bowles’ amendment that creates a carve-out for DB schemes still open to future accrual.
The third and final thing the Government should do is to drastically revise the proposals in its recently closed DB funding code.
By taking these immediate steps, the Government can avert a disastrous situation where private sector DB sponsors simply cannot meet its DB bills without shedding jobs, cutting DC pensions and losing the capacity to reinvest to bounce back.
If it sticks with its current proposals, the DWP risks head-on conflict not just with sponsoring employers but with other departments, in particular BEIS and the Treasury.