I wrote a blog over the weekend (sorry it was badly written – I was in some pain). In it I said that employers had every right to make promises about pensions over-reached the expectancy of the management to be around when pensions were being paid. This was badly written.
I think there are some employers who have an expectation of lasting indefinitely, my friend Peter Cameron Brown runs a scheme that has no end as it takes new members into a pension scheme and may soon pay DC pots into the pension in exchange for more pension. Here is an example of an employer that you can see in one shape or form in 120 years paying pensions in whatever currency we’ve adopted by then.
But I was wrong to be tough on employers who have closed DB plans because they think they should never have opened them (the vast majority of private companies- let’s face it). We set the bar too high for final salary or even career average pension schemes for many firms who’s aspiration to have the longevity and covenant of someone like LGPS or USS could not be met.
That said I do see hope, this is what a friend of mine sent me last night after a day of thinking about a comment made about pensions being paid to war pensioners generations after the original pensioner had died
(1) see American Civil War widow pensioner stories.(2) do schemes generally not pay survivors pensions to partners more than 20 years younger?(3) it is unrealistic to expect private sector companies to last 120 years, or anything like it. Just look at how many employers wound up their schemes when they could, and shafted some of their members. Plus all the insolvencies. (Public sector schemes will in due course come under strain from falling fertility and shrinking and ageing populations).
Now there’s some deep thinking going on within the casual phrasing but what we’ve been talking is creating new kinds of pensions, like the one being thought of by Nest, where some form of certainty can be created by sheer size for people who want pensions now and employers who may be around 120 years but likely not.
Here the underlying thinking is that we will need Government organisations to provide the long term promises, Nest of course are not the only one. Include the quasi Government organisations doing Government outsourced work in infrastructure and think too and maybe a few private pensions that get to the size (£25bn is the current Government set amount) that they can start taking on long-term obligations.
I don’t have worries about SIPPs and other retail options which are available to those with the means and the wish to go it alone, but I just see no wish from the mass of the population to get anything from their pension but their pension.
It is not going to get easier with an ageing population and with employers staying under pension benevolent ownership. The few I have been listening to over the past week have been exceptions not the rule.
We need schemes that are of a size £25bn +) and covenant (AA+) to take on the long term obligations of running schemes as I imagine them – pensions running over 120 year cycle.
It may be that we can only do this with CDC where the guarantees are trimmed to nil other than a promise of contributions and these will require strong providers with business plans that show they have a 120 year timeframe.
Pension provision needs to buck its ideas up for the 22nd century! Necessarily the Government must play a bigger part.