There is something very important about the company pension . It used to be referred to as “deferred pay” and may still be in some Government backed schemes. It was not unusual for the pension to be considered a mark of the company’s long-term investment in an employee’s future and many people did think of their retirement age as a change from being paid to work, to being paid as a reward. The link between the company and the pension was the pension department and the trustees.
All of this has been downplayed. First we had group pensions and then master trusts but these were not company schemes so much as employee benefits which the company’s contribution was a monthly payment and negotiation of the annual management charge. What comes out of these multi-employer arrangements is not deferred pay, it is a freedom from pensions, a benefit for those who considered “wealth” what retirement needed.
The question is fundamental. Are companies still considering themselves responsible for what goes wrong (death, sickness) and what goes right (survival into later life)? I think very few really felt that way while the great craze for providing them was alive. It was a late 20th century phenomenon and it lives on as DB pensions payable mainly to people who do not retire from the company’s service.
Now something new is happening, people who retire from service , now building up a pot of pension, will get offered a pension by default, they need not take it (they can opt-out) but they will have a right to a retirement income for life. But this is unlikely to come from a company pension and is unlikely to be a pension. The latest bright idea is a deferred annuity with a “flow of income” drawn down from the pot. This is a long way from deferred pay.
My contention is that a “float and fix” arrangement , arranged not by a pension department or trustees who are generally known to members either personally or through communications, do not quite hit the mark. Well they don’t hit the mark for the few companies who really felt that company pensions were deferred pay and benefits were critical to company culture. Such companies want more than corporate trustees, they want trustees who represent the employee (typically union or the like). They want to ensure that the company is properly promoted as sponsor (not participator as in a master trust).
The obvious example is Royal Mail, who went to such lengths to enable the company sponsored collective scheme to keep going, albeit without the old guarantees. There are a number of others whose approach to pensions is collective to a point where they consider the mortality of those in their DB pension schemes should be improved so that former staff are rewarded for service by a proper pension. I find the transport sector (providing bus, train and ship travelling services) an area where this attitude persists. Likewise established retail firms. Other sectors – such as telecom – have not such an attitude towards pensions, BT has a Standard Life GPP, Vodaphone is a participating employer in Lifesight.
To suppose that the contractual DC scheme (GPP) or the trust based but still retail DC mastertrust has outsourced “pensions” and taken over from collective plans, is to forget many company’s pride at having kept with their DB plans. Many have not outsourced to insurers and now talking openly about operating as multi-employer and single employer CDC plans with “multi-employer” recognising that retail and travel workers can often work in more than one employer with their interests at heart. It would be good to see other sectors taking this approach – they probably are – I hope we will see this kind of approach spreading. Whether own occ or trade occ, collective plans that pay pensions on a guaranteed or non-guaranteed basis are very welcome.
It may be that some of these companies with an historical embracing of best endeavour defined benefits will return to offering DB pensions to there staff. I believe that this can be done without onerous liability to employers by ring-fencing capital backed DB plans specifically to turn staff’s DC pots to pensions. The idea of a capital backed buffer has been experimented with by Edi Truell and has fund support among capital suppliers (banks +). It looks like a way forward for progressive master trusts who are looking to become attractive to savers and their employers who want DB pensions out of DC pots. It may also become attractive to own occ DC plans and even some employers who have enrolled staff into master trusts and GPPs. Their DB plans may be mothballed at present but might they become open (with capital rather than sponsor backing)?
My thinking may not be common in the market which appears at the moment to be obsessed with flow and fix solutions (deferred annuities). I am not against such plans where they fit but not everywhere. I think there is more shared ambition than insurers think.
The blogs and comments from others, show their are Trustees and Executives who believe in a “shared ambition” where employees and companies work towards collective company pensions as deferred pay!