These young people are losing their jobs and making it clear they are aggrieved – on Tik-Tok.

Older people don’t find it easy to get their voices heard when they are losing out. In this blog William McGrath argues that workers who are losing the value of their pension because they are getting no more than statutory or scheme increases, should make their feelings heard, when there’s a surplus.

Message For Defined Benefit Pension Scheme Members

Ask For More Now

William McGrath

Defined Benefit pension scheme members are widely considered in the pension industry and beyond as “lucky bastards” from the baby boomers generation.  Scheme trustees, sponsors and regulators have been grimly determined to “get rid ASAP” of a legacy problem.  Shuffle responsibility off to life insurers at almost any price.  The consequence has been life insurers and their support crew are very prosperous.  Discretionary improvements for members?  You must be bloody joking.

Now in spite of actuaries and investment consultants squandering resources through on indexed linked gilts and leveraged LDI, most schemes have more money than they apparently need. That is because life expectancy has proved overstated; interest rate increases have reduced liabilities (the way actuaries calculate them) and inflation has reduced the real value of pensions in payment.  So not living so long and having less buying power than expected is not quite so fortunate.  But who cares?  Be grateful for what you have got.  Boomer.

Members, it’s time to revolt.  Resources are there and the pension industry is in search of options for the money other than bulk transfers.  Ask for more.  Trustees do sometimes ask for discretionary increases – but usually on a “going through the motions” basis knowing the sponsor has to agree and they won’t.  Don’t let that happen.

What members should now do is align with today’s workers in a campaign to ensure that pension funds and surpluses arising are directed, as originally intended by the Trust, to the benefit of past and present employees.  It’s possible.  Circumstances post the LDI crisis have changed.  HM Treasury want schemes to run on longer and invest in productive assets.  DWP’s current consultation on DB schemes asks what should become of surpluses.  Straight forward.  Within existing legalisation and tax practice there can be “discretionary step ups” in current pensions paid.  This can become common practice.  As part of a package, proposals can be introduced for comparable sums to be added to the DC pots of current employees in new tiers with DB scheme.  Intergenerational fairness addressed.

What’s needed is to run on long term with a stable, well diversified assets portfolio and with a sponsor provided third party sum as a guarantee.  And don’t forget the well financed Pension Protection Fund covering ever more of your pension should the sponsor fail.  It’s in all stakeholders’ interests.  Not luck.  Just good trustee and sponsor judgement is needed.  Time for members to expect not less but more.  And now.

We suggest writing to the Chair of the scheme trustees and the Chair of the sponsor.  Once they realise there are stakeholders taking an active and informed interest, expect policy changes to follow.

Suggested letters to Chairs are on the following page and can be found on the C-Suite Pension Strategies website https://www.c-suiteps.com/members-letters.html

Letter to Chair of Trustees

Dear Chair,

I am a member of the XXX pension scheme – now closed to new entrants and future accrual on cost grounds.  I know that:

• XXX Group is a strong, well financed business.
• The derisking steps taken by the trustees over many years and the sponsor’s cash contributions mean the scheme has a sound position.
• The latest financial information available on the scheme shows surpluses are arising on accounting and actuarial bases.
• Government is keen to see pension schemes run on and to invest in productive assets with a UK focus. So am I.
• Consultations are underway, instigated by HM Treasury / DWP, about how to make surplus funds available to assist past and present employees as well as the sponsor. Some actuarial consultants are becoming enthusiastic.

Against this background I trust you and your colleagues are actively holding discussions with the board of XXX about discretionary increases being made now to pensions after recent high inflation levels.

I appreciate that you will want to ensure costs to the sponsor; any risks to accrued benefits and current employee benefits are also considered.  Given the strong ESG enthusiasm of the sponsor and many of the scheme members like myself look forward to hearing about the progress you have been able to make in considering the continuing and expanded use of discretions to benefit all stakeholders.

With kind regards,

Letter to Chair of the Board

Dear Chair,

I have read with great interest about the progress of the Group and your personal commitment as well as that of the Board executive to the Group’s ESG strategies.

I am a member of the Group’s pension scheme.  With the strong support of the Group, recent market changes and with reduced life expectancies, it is now well funded.  Fear of runaway costs that led to its closure to new members and accrual have receded.

I know the Government is enthusiastic for investment in “productive assets” by pension schemes and on alternatives to the bulk transfer of liabilities to the overheated life insurance market.  Further, I realise that existing legislation and regulation already allows trustees and sponsors to agree on ways to utilise surpluses and that discretion will become still more straightforward to exercise following the current DWP consultation and subsequent legislation.

Against that background I do hope that the Group is actively discussing a new pension investment and funding strategy to meet all stakeholders interests – something incoming regulations require.

The new agreement can plan to make discretionary payments now.  The much reduced life expectancies already seen are a windfall gain for the scheme – just as inflation running well ahead of 5% maxima was a benefit to the scheme in real terms.  Those factors apart of the interest rate increases should provide you with ample scope to make discretionary payments.  Once a “run on” approach is adopted there is the time to ensure sustainable surpluses arise.  The sponsor remains with, perhaps, backup guarantees in the unlikely event it fails or has to make additional contributions.

I have also written to the Chair of trustees making these points.  I have great confidence you will together be able to produce a package which effectively addresses the needs of all stakeholders – past and present employees and the company as it develops its business further.

I see the pension scheme plan as a litmus test and an opportunity to highlight the real nature of the Group’s ESG thinking.

With kind regards,

Thanks to

Alternatively – you can behave like your smart kids/grandkids.