Greatest Good 2 paper launched

We co-sponsored Greatest Good 2, a new research paper by the Pensions Institute which was launched 21 June 2017.

The Greatest Good 2 paper is also the Pension Institute’s response to the Department for Work and Pensions Green Paper on the ‘Security and sustainability in DB pension schemes’.

It follows on from the Greatest Good for the Greatest Number report in 2015, which examined early intervention strategies for trustees and sponsoring employers of ‘stressed’ DB schemes. Since then, press coverage of the issues surrounding the pension schemes of BHS, Tata Steel and Hoover have thrown DB schemes further into the spotlight.

The discussion paper makes a number of findings and recommendations to improve the security and sustainability of UK DB pension schemes, including:

1. No evidence of a widespread crisis or that deficit repair contributions are generally unaffordable, and therefore there is no case for permitting pension schemes to reduce indexation to the statutory minima across the board.

2. Regulated Apportionment Arrangement (RAA) should be streamlined for situations where full benefits are unlikely to be paid, insolvency is likely, and the outcome is better for members than insolvency.

3. Pension Protection Fund (PPF) compensation ‘cliff-edge’ is unfair for members who are below normal retirement age members. Phasing PPF compensation levels based on age and length of service would introduce greater equity between member cohorts.

4. The Pensions Regulator (TPR) should collect additional funding data to create an ‘early warning system’ for schemes in stress to trigger interventions to produce better outcomes for members, sponsors and PPF levy payers.

5. TPR could make better use of its existing powers if it had greater resources and government policy was more permissive of outcomes which didn’t pay full benefits.  TPR should have greater powers to compel stakeholders to attend interviews where appropriate and to direct trustees to reduce benefits to help deliver fairer outcomes in stressed scenarios.

6. Consolidation for DB schemes should provide limited cost efficiencies other than for small schemes and could create additional costs in for example, dealing with sponsors.

Darren Redmayne said: “Research from both the Pensions Institute and the Pensions Regulator shows that some 10-15% of DB schemes are unlikely to deliver benefits in full to members. Under current regulation these “walking dead schemes” battle on, incurring substantial and unnecessary ongoing fees and being forced to take bigger and bigger bets on investments returns in the absence of other alternatives. In doing so, if the bet doesn’t pay off, value is destroyed for members and also other PPF levy payers who will pick up the tab.

“The discussion paper finds a “third-way” for cases where the sponsor covenant is demonstrably and overtly unable to support the scheme – which aims at maximising benefits for members and save the scheme from going into the PPF. We are glad to be one of the six firms co-sponsoring this important research into potential solutions for stressed DB schemes.”

The full discussion paper is available online.

Greatest Good 2 appeared in Professional Pensions, Pensions Age and Actuarial Post.

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