Today's DWP Defined Benefit pension Green Paper

[Ginge R]

A defined benefit achieved via hedge funds, commodity/managed futures, private equity and credit derivatives. What could possibly go wrong?

Scope to access some DB or even DC benefits earlier, and easier, than age 55. It might may transferring out of a DB scheme easier, especially for those with smaller 'pots'.

The evidence 'does not support the view' that DB pensions are 'generally unaffordable' for employers.

Conditional indexation is now on the table - it goes much further than simply switching from RPI to CPI. A RPI to CPI indexation switch could save schemes £90bn. Or it could reduce member benefits by £90bn. Last man standing wins *that* one.

Distressed schemes may be allowed latitude to suspend indexation, and now talk of employers having greater flexibility over indexation arrangements (which could include RPI to CPI as well as the temporary switching off of annual increases).

Interestingly, when it comes to inter-generational strife, DWP suggests that 'no evidence' exists that DB provision is impacting on the wages or pensions for younger workers. Hmmm.

Average DB pension? £7000 pa.

https://www.gov.uk/government/uploads/system/uploa...

[Roger Irrelevant]

Ginge R said:

Interestingly, when it comes to inter-generational strife, DWP suggests that 'no evidence' exists that DB provision is impacting on the wages or pensions for younger workers. Hmmm.

Hmmm indeed. When my then employer closed its DB scheme to future accrual not so long ago, one of the key reasons it cited was the effective pay differential it created between long-serving older employees (of which there were many), and newer, generally younger employees. And they had a point - while the contribution they made to the DC section of the scheme was a not-too-shabby 15% of gross salary, the average for DB members was more like 30%. Of course, there's no way of being certain that pay rises have been higher since the closing of the DB section than if it had remained open, but that sort of differential is difficult to justify. To be honest I think there's an argument for a rule such that you can't close a DB scheme just to new members, you have to close it to future accrual too, to avoid exactly this sort of two-tier workforce situation.

[drainbrain]

Must admit to some surprise at that £7k figure.

Is there an "average years of accumulation" figure available?

[Ginge R]

Roger Irrelevant said:

Hmmm indeed. When my then employer closed its DB scheme to future accrual not so long ago, one of the key reasons it cited was the effective pay differential it created between long-serving older employees (of which there were many), and newer, generally younger employees. And they had a point - while the contribution they made to the DC section of the scheme was a not-too-shabby 15% of gross salary, the average for DB members was more like 30%. Of course, there's no way of being certain that pay rises have been higher since the closing of the DB section than if it had remained open, but that sort of differential is difficult to justify. To be honest I think there's an argument for a rule such that you can't close a DB scheme just to new members, you have to close it to future accrual too, to avoid exactly this sort of two-tier workforce situation.

You'd have to have the wisdom of Solomon to determine that one, it depends through which prism you view it. There is no right and wrong, just perspective. In this instance, grandfathering rights are an option to ensure that those who near retirement aren't scuppered, but then again, do you have an abrupt cut off for those who qualify, or a graduated tapering down of benefits?

As a very young boomer, almost Gen X, and with (cough) a number of millennial kids, I see it in many ways. My own pension indexation was revalued in 2010.. the argument could have been then, that only future accrual was re-indexed, not the whole lot. Rather enjoyably, a few years later, I got to tell the responsible pensions minister exactly what I thought of *that* particular one, as I rationalised my individual response to the MP pension scheme consultation.

[Ginge R]

drainbrain said:

Must admit to some surprise at that £7k figure.

Is there an "average years of accumulation" figure available?

No.. 7k too high, or too low? It still represents a hefty notional figure/liability mind.

Scheme trustees will be weeping, hence the eagerness with which this Green Paper was awaited. But if the fall in sterling has resulted in imported inflation (which it has now, and which could go on rising for the next couple of years), what impact on bond returns? With the market and the BoE expecting inflation to continue to increase, gilt yields may finally be pushed higher, which in itself would exert a long awaited downward pressure on transfer values.

Trustees get little respite as they try and put the brakes on transfer outflows if for no other reason to protect the remaining members of the scheme, which yesterday's paper sought to address. There was not much solace in it for them, the g'ment seemed to undermine the case that schemes cannot reasonably continue to be funded by responsible employers ("You Green, yes you lad, I'm looking at you"). The circle is torturous.