Society should think carefully before enacting far-reaching legislation in pursuit of benefit security. While some changes to the current system could be helpful, legislators should be wary of knee-jerk reactions in attempts to solve the problems facing DB schemes.
We have reached a similar conclusion to the DB Taskforce that around 1 in 4 (or 1,500) DB schemes will not pay all the benefits currently due in full. Where I disagree with the PLSA, however, is in how we should respond to this. I think the last thing we need now is more changes.
The PLSA’s DB Taskforce interim report, which calls for several areas of change including on scheme consolidation, flexible legislation and benefit design, and better risk analysis.
Most member benefits will be paid – is that good enough?
Society has made significant promises to members of DB schemes, for whom we have not explicitly allocated sufficient assets. There is not enough money in these schemes to provide the benefits accrued, meaning that assets must come from elsewhere, or the security of benefits will be reduced.
BHS and Tata Steel are two examples of where benefits have been reduced, made possible by the existence of the PPF. This safety net is only triggered in instance of insolvency, leading many to suggest that we need more legislation to constrain sponsors behaviour. This is not something in any corporation’s business plan and inevitably means that stakeholders will have suffered substantial losses en-route. When a sponsor is approaching insolvency there is a wide range of options - none of them easy - to enable an optimum business solution to be found.
Yes, the system is not perfect but it is better than it was and the Regulator has significant powers which it does use where it is able to. All members will receive most of their benefits and, in the short-term at least, most DB members will continue to be paid in full. Instead of calling for widespread changes to the system, we should start looking to the future and thinking about how we can encourage greater savings.
The PLSA’s DB Taskforce will develop its initial proposals into a set of concrete recommendations to put to government, regulators and the wider industry at its Investment Conference in March 2017.