If you want stereo definition of what has just happened, this blog offers it.
Here are two of my favorite consultants (who clearly like each other) , explaining the momentous events happening to pensions. I know this is not about DC saving but it is where change is starting and DC pensions are bound to follow.
So let’s read their takes on recent events. Calum is from Hymans Robertson and Scotland!
What a day for the future of DB pensions. 
The government published its response to the Options for DB consultation. Top headlines:
1. Barriers for surplus sharing will be removed, while maintaining safeguards to protect members. A statutory resolution power for trustees will be introduced to modify their scheme rules.
2. On when trustees can share surplus – the government is “minded to amend the threshold from the current buyout threshold to a threshold set at full funding on the low dependency funding basis”.
In combination, this could gradually release £400bn of productive capital as Sachin Patel outlines on page 14-15 of Untapped Pensions https://lnkd.in/e-iiNkjr
There is plenty of detail to be worked through but this is a watershed moment for DB pensions schemes.Always risky to look back… at a wish list below…. but it looks like the essential elements have been granted! Kudos on that to the many conversations with awesome, forward thinking people in the industry, and to the listeners who make change happen.
John Hamilton Henry Tapper John Quinlivan Steve Hodder Gurbani Swanni Leach William McGrath Leonard Bowman Laura McLaren Ben Fox FIA Graham Jones Terri Garratt David Willetts Elaine Torry Ben Farmer Ian MacRae Kate Yates Peter Cameron Brown
If you don’t get the momentum , then here’s Steve Hodder of LCP and England to give his take on the same paper.
Henry, this is all very well, but as a DB Pensioner and a former Trustee Director of the scheme now providing this DB pension I have one major concern. It is, I am aware, a little trite, but how will it be determined that a pension fund, such as the one providing my pension, is in surplus and what safeguards will be provided to ensure the continuation of the scheme’s “Pension Promise”? After all, we all know that the only point in the life of a Pension Scheme when we can be sure it is in surplus is the point at which the last member of said scheme dies! So, if the government is going to legislature for this, is the government going to also provide “insurance” (ie funding) of the pensions promise? If not then we must campaign to stop this!
Your comment is a fair one to make, Robin, but can I ask how you managed the obvious conflict of interest when you were both a trustee of and a prospective beneficiary of a DB scheme?
As for saying that the only time you can measure “surplus”, a pensions balance sheet measure, is when the last pensioner has been paid? That seems to me a rather extreme position to take.
Actuaries, accountants and auditors make estimates on an ongoing basis.
These professionals have, however, unfortunately contributed to there being an obsession with pensions balance sheets.
These balance sheets simply reflect whether at at a point in time the marginal market value basis used to measure the assets (aka mark-to-market) means the assets are greater than, less than or equal to similar point in time estimates of future liabilities, discounted back to a balance sheet present value.
If all decisions were stayed until we had “certainty” after the event, there would be little or no progress.
Decisions need to be taken again and again and again, and their wisdom reviewed afterwards again and again and again, using estimates.
In a pensions context, we would presume “prudent” estimates at that, which is why so much professional
advice is taken beforehand and afterwards.
I have a little more trust in trusteeship and the inputs to decision-making provided by dedicated professionals than your own conflicted experiences seem to suggest, at least to me.
As a leading actuary and investment adviser remarked to me recently, in relation to these growth supportive themes, “you know, we actuaries and pension industry types have spent so long admiring the shine on our shoes (ie thinking only about our own scheme, and fees), and we’ve failed to look up and around us. If we had done so, then we’d have realised that the collective impact of our individual decisions – which has been massively influenced by group-think and clever nudge psychology – has been to massively dis-invest our economy almost to the state it is bereft of the capacity and growth needed to pay any of these future pensions.” I could only agree, and see well done for looking up!
The second pillar Pensions (ie the employment related ‘extra’ over above State minimum) are but a preferential hypothecation of the economy. And, importantly, no matter what bits of paper, legalese etc, DC, DB, Insurer, etc we put around them, they can all be unpicked or re-distributed by any future Gov’t’s.
Schemes and our pension system MUST support the economy, not drag it down as it currently does, if our pension system is to deliver. Growth is a pre-requisite and an imperative if we are to pay those pensions, not a ‘nice to have’