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.