Brightwell ran a webinar yesterday morning, sadly I was called to hospital and could not attend but I hear that the overwhelming view of schemes was that they wanted to stay open rather than hand on the rights to pay retirement income to insurers.
For schemes in hansom surplus with the means to continue running without external assistance, Brightwell offers a great solution. But the vast majority of pension schemes are not in that happy position, they struggle because they are under-capitalised to run on and are being forced to wind up and hand responsibilities to insurers, against their will.
The reality for many smaller DB schemes is that they cannot continue for ever- with weak covenant from employers and high expenses relative to benefits in payment.
We had hoped that superfunds and the protection fund would help smaller DB schemes (let’s say £100m or less in assets) to keep paying pensions.
The Pension Schemes Bill gives no help to those wanting to help smaller schemes with capital , gives the Pension Protection Fund no seat at the table and gives us little hope that Clara will grow faster , be joined by others or that the superfund initiative is anything but “buy-out delayed a few years”.
Say it quietly, but the section of the Pension Scheme Bill that deals with DB consolidation – called Superfunds – looks remarkably like something written a few years ago and hauled up to satisfy the wish to maintain a pension system rather than capitulate to the insurance sector (and diminished ambition for growth).
My understanding is that the Brightwell webinar (without questions), did not explore what help could be brought to smaller schemes either from the PPF’s burgeoning surplus or from the offers of support from those with capital to hand.
So far I have received only one submission from those looking to support smaller schemes, I include it below. It focusses on a simple issue for any investor in pensions, the opportunity (or in this case the lack of opportunity) to make a profit.
This brilliant exegesis of the Pension Schemes Bill’s proposal to make superfunds work. Superfund seems now to be defined as any capital backing for a pension.
Support from TPR?
In yesterday’s blog from TPR’s CEO Nausicaa Delfas, promises much but her blog does not touch on how DB pension schemes, (especially small ones), can soldier on
There is a failure to address a key question from Brightwell, from Nausicaa and most importantly from the DWP’s Pension Schemes Bill.
Far from dealing with the important question of DB consolidation , the Government and parts of the financial services industry benefiting from “de-risking” seem to have decided that an unworkable superfund solution can be proposed while buy in and buy out is in practice used.
This needs to be debated in parliament and questions about the efficacy of the bill raised in this blog and elsewhere.
As was asked of the Pensions Minister at yesterday’s TPT seminar on the Future of Pensions, particularly considering CDC; one option that does not appear to be considered by the industry or the Government or regulators is the reopening of schemes to DB accrual.
Reopening of DB accrual ensure the benefit of the pension scheme assets and from their productive investment flows to the employer and its current and future workforce. The additional asset flow into the pension scheme with the balance shift to more distant liabilities quickly eliminates any remaining deficit and continues to build surplus potentially reducing the employer’s future employment costs (almost irrevocably upward only variable with a DC arrangement) through the balance of cost funding arrangement.
The current and future employees gain from the reassurance of a defined income in later life, guaranteed both by the employer and the PPF. A prospect denied to the current workforce with DC arrangements and only partly addressed by a target benefit CDC arrangement.
I will be spending next week at the PLSA LGPS event asking questions about how LGPS takes DC pots into its DB scheme – what governs the rate and when the factors were last looked at. Pension Oldie- we know this is a neglected area too.