Punter Southall questions impact of Pensions Commission report on defined benefit schemes

30 November 2005, Punter Southall, the national actuarial consultancy, points out that the Pensions Commission report is a missed opportunity as it has not widened its remit to include the increasingly difficult situation being faced by employers with defined benefit occupational pension schemes. As acknowledged by Lord Turner*, the report does not address how legacy issues can be resolved to enable employers to reduce their total pensions liabilities.

Commenting on the report published today, John Batting, Chief Executive of Punter Southall said: “We welcome this report and believe that Lord Turner’s insistence on making changes to the state pension system an integral part of the solution to the UK pensions crisis will ensure that the debate must look at the UK pension system as a whole and not at private pension provision in isolation.”

“However, we feel that the Pensions Commission report potentially creates a perverse situation. It recommends that the government backtracks on its promises that have proved too costly by raising the state pension age to 68, but then does not allow employers to rein in the spiralling costs of their defined benefit promises to members by making similar retrospective changes.”

“We would have wanted to see the report suggest some resolutions - such as allowing employers with schemes in deficit to make retrospective changes to pension schemes in order to make them more affordable or by allowing employers to buy back their Guaranteed Minimum Pensions into the State - which would have helped employers to reduce their total pensions liabilities.”

“The concern is that, without such measures to address the past service liability, employers with defined benefit promises will seek to reduce their liabilities in the only way left open to them – by reducing the cost of benefits accruing in future. We hope that the 3% employer contribution to future benefits does not become the norm.”

*Pensions Commission Second Report page X:

“Our Report covers a wide range of issues. But there are some important problems which it does not address. In particular while we comment extensively on the long-term implications of the closure of private sector Defined Benefit schemes, we do not make recommendations on how companies should manage the very large legacy risk (i.e. pension fund deficits) which the past system has left, nor do we comment on the operation of the Pension Protection Fund.”

For media information please contact:

Penrose Financial

Roman Townsend, Penrose	020 7786 4875
Julie Allison, Penrose	020 7786 4872

Notes to editors:

Punter Southall:
Founded in 1988, Punter Southall now has over 320 staff including Principals, with offices in Birmingham, Edinburgh, Glasgow, Guildford, London and Wokingham.

Punter Southall & Co is a member of the Sanlam Financial Services (SFS) group of companies.

The firm prides itself on its ability to combine the highest technical expertise with its own unique, consultative, creative and innovative approach.

In conjunction with other SFS Group businesses, Punter Southall & Co can provide the full range of pensions actuarial and investment advice, consultancy and administration services. Its clients, in the UK and overseas, span the full range of pension schemes and related employers, in terms of size, nature, complexity and business sectors.