I am indebted to my friend and colleague Mark Johnson with whom I attended an enjoyable mid morning meeting with an insurer of the banking persuasion,
We were reminded by the insurer that occupational pension schemes do not guarantee benefits and we had to admit that semantically speaking , a defined benefit is promised not guaranteed.
This seems a bit rough on defined benefit pensions, which did use to promise benefits using the best endeavours of trustees and sponsors but have, since certain technical changes in pension funding resulting from adopting a marked to market approach to accounting, generally close because the scheme’s funding sits on the sponsor’s balance sheet as a guarantee.
The occupational pension scheme is an onerous guarantee to the stakeholders of the sponsor (especially the owners) but a promise to those who are members of it.
My debt to Mark (who has worked in the insurance sector for some time) comes from his digging out and sending me certain instances of the use of the word guarantee in relation to occupational pension schemes, from unusual sources
Some examples where income from a defined benefit scheme is referred to as guaranteed:
The greatest trick the devil ever pulled..
Public sector
-
DWP publication – ‘expensive guarantees of a defined benefit scheme’ (on page 9)
-
Pension Protection Fund – “It will give you a guaranteed income for the rest of your life” (first para under ‘What is a defined benefit pension scheme’) – link
-
NHS Pension Scheme – “When you take your pension benefits, you’re guaranteed to be paid a defined amount of pension benefits.” – link
Other sources
- Money.co.uk – “ defined benefit pension is a type of workplace scheme that gives you a guaranteed income for life” (first para under ‘What is a defined benefit pension?’) – link
Mark wryly concludes with the question “Why do insurers believe they have exclusivity of the term?”
Answers on a digital postcard to henry@agewage.com or in “comments” to this blog or where you read it.
Two to add to Mark’s list:
Between April 1978 and April 1997 UK pension schemes were able to “contract out” and in return for providing a minimum level of benefits (called a Guaranteed Minimum Pension) employers and members paid lower rates of national insurance.
And since 2005 it has been a legal requirement that any employer withdrawing from a DB scheme with a “deficit” pays a ‘one-off’ debt to the scheme. This provides additional funding for the benefits that its members have accrued and is calculated on the so-called solvency basis.
You’ve been here before, Henry.
https://henrytapper.com/2024/01/29/are-any-of-our-pensions-really-guaranteed/
Oh dear- an older moment!
Surely the insurer’s guarantee of the pension benefit should be the same as the employer’s. How would the insurer’s cope if they were subject to the DB Funding Code?
Makes a nonsense of the present regulatory regime and the Treasury’s goals for productive investment.
Sorry for the duplicate post – see below
Surely the guarantee given to the DB Member by an insurer is the same as that given by the employer. How would the insurers cope if they were subject to the DB Funding Code.
Rather makes a mockery of the present regulatory regimes and fails to meet the Treasury’s objectives for “productive finance”.
Also why should the PPF offer members lower levels of protection than the FSCS?
Very good point!
PPF is sitting on a £bns of surplus sourced from contributions forced on Schemes, which could otherwise have been used to provide more inflation protection to members. Why should members take a haircut now?
At the same time PPF/TPR continues to rake in £100m each year (minimum) out of employers / schemes as it continues to expand its job-creation empire for its growing army of ex-advisers to (before it shut them down) former DB schemes.
You really couldn’t make up the catastrophe that TPR induced investment policy is inflicting upon our economic prospects (and Sir John Kay’s excellent paper – another of those inconvenient truths, that the industry choses to sideline – lays bare the need to amend for this – https://www.johnkay.com/the-biggest-avoidable-policy-disaster-in-british-politics/)
Get rid, and consolidate / shrink all of FSCS/PRA/TPR, please. One (hopefully smaller) protector for retirement / savings will be enough.