From the PPF Purple book 2025. (private DB schemes in the UK)
In some brooding over the small DB schemes left in the private sector yesterday, I prompted an email that I will quote from. I gave six reasons for there still be nearly 5,000 of the expensive to run and questioned if there was much value for most of them still to be around. Here is the email..
On your 5th reason why we have so many DB schemes.
It has taken time for insurers and advisors to get round to small schemes. I assume some “yes” are [surviving] through self interest by advisors, although that also applies where older actuaries want to arrange buy in/out and collect the higher fees now.But whether it is inefficient, not worth the bother for insurers or self interest it is scandalous. [my italics]A. Almost a quarter of schemes have under £5mn assets. The total assets of this group is £2.5bn, so about 0.2% of the total DB assets. I assume some are special cases, but this is an almighty waste of time for the employers. I do wonder how many have any accruing benefits.B. The next 2 groups are not much better. 1,600 schemes, about a third of the total, with assets between £5mn and £25mn have total assets of £20bn, about 2% of the total. So over half the total schemes have about 2% of the total DB assets.Obviously we also know that a small number of schemes have a high proportion of the assets.But we really need to tackle the “small scheme” urgently.
We have seen the small scheme, actuaries (First Actuarial, Atkin and others consolidated into insurance brokers). Are these insurance brokers going to do anything about the client books that now they manage? We will see.
We have heard the rumblings from organisations who from behind the anonymity of conference polls recognise that nothing has been done to make superfunds a genuine challenge to ludicrously value-destructive bulk purchase annuities. Even master trusts, such as that proposed by Punter Southall have given up.
The Pensions Bill said it encouraged superfunds but my reading of it last summer says that any entrepreneur putting together the capital to back small schemes has no surety from the DWP that they can get their capital back but by annuitizing in the short to medium term. The legislation for superfunds to become a viable means to run on is parked in the lay-by of “2030 +” the job of another Government.
LCP’s proposal (supported by the PPF) that the PPF be allowed to operate at 100% of the benefits given up, where the small scheme was properly funded, was given no space in the Pension Scheme Bill. This was a shock and a shame.
The Pensions Regulator is drifting towards 1,000 staff, most stuck analysing schemes showing no threat to the PPF but great harm to the economy. The TPR, in terms of protecting the member is doing fine , ticking all its boxes but “5000pensions” they regulate are a pariah to Great Britain PLC.
We will continue to see DB schemes doing little good as schemes, though much good to the pensions industry. They are being kept alive to be the carrion for insurers in the next five years. By the end the small and the small to medium sized schemes will gradually be eaten from within by “buy-ins” though still the liability of the sponsors till something is done in legislation to create genuine superfunds , to accelerate buy-out or make PPF do something with its £15bn surplus.
To use my correspondent’s word, this is “scandalous” and if you are reading this and charging yourself to small DB schemes in whatever way, you should feel uncomfortable This is one for the Pension Commission. It is one for the House of Lords. It is one for the PMI the IFOA and the various Societies of professionals who congregate at conferences. It is one for Pensions UK next March in Edinburgh.
I totally disagree with your correspondent’s premise that the run on of small schemes is scandalous.
The vast majority of small schemes are associated with small employers. Should small employers not be given the same flexibility to decide on the future of their scheme as larger employers? Should small employers not be able to obtain the benefits of the investment returns available on the assets in the pension scheme?
For many small employers, the short term cash commitments to bring the pension scheme assets up to buy-out levels would (as for 000s of others during the past 20 years) place an intolerable strain and lead to the demise of the employer, affecting its current as well as past employers and also damaging the local and UK economy. For others in so called “surplus” should not the employer be able to benefit from the investment returns on the scheme assets, in the knowledge that they can be re-invested in the employer either through a refund or more efficiently by funding continuing DB accrual and thereby reducing its future employment costs compared to competitors constrained by DC contributions.
I think it is rich for the insurance broker mindset to say that small employers should buy their over-priced insurance policies when the risk to the smaller employer is that a handful of former employees might live for slightly longer than expected and outstrip the growth in the pension scheme assets as actually invested, and not as assumed in a valuation.
The real killer for the small DB schemes are the administration costs forced on them by an over-burdened regulatory regime and pension consultants over-selling their services, including so called “risk transfer”!
The “Value for Money” framework in UK defined benefit pensions has become a euphemism for cost-focused consolidation. By emphasizing scale and administrative efficiency over actual member outcomes, VFM assessments disproportionately penalize smaller, innovative DB schemes that may deliver superior benefits but operate at higher per-member costs.
This creates a self-fulfilling prophecy: smaller schemes face regulatory pressure to consolidate or close, while the barriers to establishing new DB arrangements become insurmountable. Established large schemes and consolidators benefit from this narrative, effectively eliminating future competition.
The fundamental flaw is treating pensions purely as a cost exercise rather than evaluating the actual value delivered—retirement income security, benefit generosity, and covenant strength. A truly comprehensive VFM assessment would balance costs against benefits provided, investment performance, and member security.
Without reform, this framework ensures DB provision becomes the exclusive domain of legacy mega-schemes, stifling innovation and preventing new employers from offering high-quality DB arrangements regardless of their merit.
The “Value for Money” framework in UK defined benefit pensions has become a euphemism for cost-focused consolidation. By emphasizing scale and administrative efficiency over actual member outcomes, VFM assessments disproportionately penalize smaller, innovative DB schemes that may deliver superior benefits but operate at higher per-member costs.
This creates a self-fulfilling prophecy: smaller schemes face regulatory pressure to consolidate or close, while the barriers to establishing new DB arrangements become insurmountable. Established large schemes and consolidators benefit from this narrative, effectively eliminating future competition.
The fundamental flaw is treating pensions purely as a cost exercise rather than evaluating the actual value delivered—retirement income security, benefit generosity, and covenant strength. A truly comprehensive VFM assessment would balance costs against benefits provided, investment performance, and member security.
Without reform, this framework ensures DB provision becomes the exclusive domain of legacy mega-schemes, stifling innovation and preventing new employers from offering high-quality DB arrangements regardless of their merit.
The “Value for Money” framework in UK defined benefit pensions has become a euphemism for cost-focused consolidation. By emphasizing scale and administrative efficiency over actual member outcomes, VFM assessments disproportionately penalize smaller, innovative DB schemes that may deliver superior benefits but operate at higher per-member costs.
This creates a self-fulfilling prophecy: smaller schemes face regulatory pressure to consolidate or close, while the barriers to establishing new DB arrangements become insurmountable. Established large schemes and consolidators benefit from this narrative, effectively eliminating future competition.
The fundamental flaw is treating pensions purely as a cost exercise rather than evaluating the actual value delivered—retirement income security, benefit generosity, and covenant strength. A truly comprehensive VFM assessment would balance costs against benefits provided, investment performance, and member security.
Without reform, this framework ensures DB provision becomes the exclusive domain of legacy mega-schemes, stifling innovation and preventing new employers from offering high-quality DB arrangements regardless of their merit.