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
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DWP publication – ‘expensive guarantees of a defined benefit scheme’ (on page 9)
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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
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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.