DB transfers, etc.

[Ginge R]

One to keep an eye on if you're minded to do it. Yesterday, the Work and Pensions Select Committee published a report, ostensibly, about BHS. Cast your gaze away from Frank Field doing his headline populist bit, sticking one on Philip Green, and tucked in it were two little interesting items.

Firstly, it looks like the government will consult on relaxing the rules surrounding transferring small DB to a DC fund (a Pistonheads perennial). But in addition, more worryingly for some maybe, it looks like it's also going to announce a review on the rules surrounding the indexation of benefit accrual - or, how quickly/slowly your pot grows.

This happened to the public sector a few years back, and it looks like it could be translating to the private sector, too. I wouldn't be surprised if we see talk of Defined Ambition pensions remerging in 2017. As ever, take authorised and regulated advice that you trust.

http://www.publications.parliament.uk/pa/cm201617/...

[thekingisdead]

Thanks GingeR. Good head's up. As someone in their early 30's lucky enough to be in a DB scheme I take interest in all the changes going on in the pension world. On that note - what is a 'defined ambition' scheme?

Thanks

[Ginge R]

DA is the new hell. It's something which was first aired by the Lib Dems in coalition a few years ago. The Dutch have it.

http://www.pensionsadvisoryservice.org.uk/about-pe...

http://citywire.co.uk/money/qanda-what-is-a-define...

http://citywire.co.uk/new-model-adviser/news/govt-...

[lauda]

The indexation change (RPI to CPI) has already happened in lots of schemes since the rules didn't specify the inflation measure to be used. Therefore when the government changed the official inflation measure to CPI, so did the schemes.

So it's only the schemes that specifically referenced RPI in their rules that haven't been able to change for historic benefits.

Whilst members do end up worse off on an absolute basis with CPI indexation, relatively speaking, they are no worse off after 20 years of retirement than on the day they retired as their benefit is still inflation-proofed.

It won't plunge otherwise financially secure pensioners into poverty so isn't really that big a deal.

[Ginge R]

Agree, to an extent. Some schemes are protected by restrictions in scheme rules, and the 1995 Pensions Act 1995 limits a scheme’s ability to make changes that worsen benefits already built up. The government may not be introducing legislation forcing schemes to change to CPI, but this will make changing scheme rules a lot easier. More powers are to be given to the regulator; the worry is that it may be compelled to act when government may otherwise be too squeamish to. In effect, another layer of insulation. And as ever, it's the ones at the margins of poverty who are disproportionately more affected by the slightest tweak, and the difference is magnified over time.

[basherX]

I'm not sure that the Dutch model is so very bad. They can share the problems arising from sudden falls in funding levels by compelling sponsor payments AND/OR cutting benefits/reducing indexation and this flexibility means allows a much more pragmatic approach to issues that arise from time to time. Because the system is well-established, pensioners don't react to variable pensions in the way we might expect in the UK.

In the UK there are scenarios where taking a benefit cut could be preferable to the PPF alternative and, as BHS pensioners are discovering, the prevailing view that DB pensions are "guaranteed" needs to be challenged. Of course, where sponsors can afford to continue supporting existing DB schemes they should.

The PLSA's interim report into DB covers the problems with binary outcomes in UK DB provision very well and overall I thought it was a fair summary of some of the issues (although there are bits of it I didn't support). Worth reading for those who are interested: http://www.plsa.co.uk/PolicyandResearch/DocumentLi...

[Ginge R]

Thanks for the link, I hadn't seen that.

DA biggest problem, intergenerational cross subsidy. Going into PPF won't really affect the shop floor workers, only the middle managers upwards. And they have the clout. Agree completely about DB issues. Once you remove the promise, what do you have left that makes them compelling? Simplicity, cost, regularity. They're all great, but they are no longer the guarantee that made them an automatic no brainier for so many.