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Pensions Regulator warns of defined benefit 'endgame'

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  • Pensions Regulator warns of defined benefit 'endgame'

UK - David Norgrove, chairman of the UK Pensions Regulator (TPR), has warned trustees the annual National Association of Pension Funds (NAPF) trustee conference in London today of the challenges facing defined benefit (DB) schemes in their "endgame".
 
In his final speech before the end of his five-year term at TPR , Norgrove said contributions had had to run to keep up with rising longevity, falling discount rates and shortfalls in investment returns.
 
But he said that without funding plans in place, the last three years would have been far worse, and that regulation, by allowing trustees and employers some flexibility, had worked.
 
He said the regulator had seen a 16% increase in usage of contingent assets and that the average time span for recovery plans had lengthened to nine years, but that despite the £29bn (€34bn) in scheme contributions, DB schemes were only marginally better funded that six years ago.
 
"The economic downturn has counteracted the rise in contributions, but we cannot move from one recovery plan to another," he said.

Norgrove warned that DB schemes were in an end game, as more than half (58%) were now closed, while 21% were shut to future accruals, and sponsoring employers had greater incentive to shift risk off balance sheet.
 
He said employer interest in pension schemes would lessen and that there would be pressure from shareholders for companies to de-risk.

He said schemes faced the challenge of being dominated by older members and a distancing from the sponsor, as the liabilities remained on company balance sheets for decades to come.
 
"We could see MNTs all over age 90," he said.

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