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Pensions White Paper: bullets dodged but opportunities missed

Published date
Inadequate pensions, expensive pensions, pensions going to the lifeboat scheme: there is a long list of hot topics in UK retirement provision.

But today’s long-awaited Defined Benefit White Paper is unlikely to do much to address them.

What measures are contained in the White Paper?

The Pensions Regulator will have more powers to punish bosses who put their pension scheme at risk.
Impact: This might punish the worst offenders and perhaps deter those who are considering some dodgy dealings. But expect cases to get snarled up in the courts. And for there to be little practical impact on the outcomes for scheme members.

A revised scheme funding code.
Impact: This would be positive if it gave schemes more scope to take account of likely long-term returns on assets. More likely is greater conservatism and control of schemes’ investment strategies by the Pensions Regulator.

Requiring trustees to appoint a Chair who will have to submit a chair’s statement with the scheme’s valuation.
Impact: a broadly positive move as long as it doesn't deter lay trustees from taking on the role.

Exploring consolidation of pension schemes, including allowing employers to detach themselves from their schemes and place them in so-called superfunds.
Impact: While consolidation could cut costs, there are important missing ingredients from the current picture. These include proposals to gain members’ consent for such transfers, member representation in scheme governance, and rules to ensure that members cannot face benefit cuts in bad times while scheme providers profit in good times.

What is not included?

The government has resisted employer lobbying to give them the power to cut rises on past pension service.
Impact: Some bosses had sought the right to cut inflation uprating on pensions to Consumer Prices Index inflation, even if higher indexation was specified in scheme rules. This decision ensures firms cannot transfer money from pension scheme members to shareholders.

No proposals to make life easier for open DB schemes.
Impact: One of the greatest challenges working people face is saving enough for retirement. Most defined benefit pensions provide security. But many employers are balking at increased contributions due to pension deficits inflated by currently rock-bottom bond yields. Nothing was announced today that will encourage employers to keep schemes open.

Nothing is proposed to improve benefit pay-outs from the Pension Protection Fund.
Impact: Members, especially those not yet retired, lose out on some benefits if a scheme enters the PPF. Their headline benefits are cut and inflation uprating is often lower. Giving the PPF the goal of raising pay-outs could improve member benefits and improve the confidence of affected members.