Sections

UK pensions minister proposes DB with 'no liability beyond employment'

Related images

  • UK pensions minister proposes DB with 'no liability beyond employment'

UK - Defined benefit (DB) funds with no further obligations on an employer once a worker leaves, and a levy on defined contribution (DC) savings to allow for smoothing, are two of the ideas proposed by pensions minister Steve Webb as he shed light on his 'defined ambition' proposals.

Speaking at the National Association of Pension Funds' (NAPF) annual conference in Liverpool, Webb also said that enabling greater risk-sharing among UK pension funds though the introduction of defined ambition was not a "distraction".

Responding to comments from his Labour shadow Gregg McClymont, Webb sought to explain the notion behind defined ambition once more, asking whether the pensions landscape should shift entirely to DC.

The Liberal Democrat minister said there was "significant appetite" for risk-sharing in the pensions field, noting that a number of FTSE 350 companies had approached him for details of the scope of risk-sharing since he first floated the proposal.

"Where employers are willing to risk share, shouldn't I - shouldn't we - help and encourage them rather than stand in their way?"

His comments came as the NAPF published a series of essays on the practicality of defined ambition in which experts - including Webb himself - outlined their views on the 'third way' pension option.

Writing in the publication, chair of the NAPF retirement policy council Ruston Smith, also head of Tesco's pensions, said: "Without question, the ability to successfully implement the defined ambition vision will require a change in attitude from individuals, employers and the government alike.

"Making defined ambition a success will require cross-party support for major reform and relaxation of some of the current legislation. We hope the government is willing to take up the challenge of seeing its vision put into practice."

Webb said the government's role would be to act as facilitator for this interest from employees and employers in risk-sharing.

The MP said that one of the ideas likely to be included in the forthcoming consultation on defined ambition was for a "DB-lite" approach, whereby companies would no longer "be on the hook for people, who don't work for you anymore, for years to come".

He said that the current scenario would often result in balance-sheet responsibility for employees up to 65 years after they had departed due to the benefits - including spousal pensions and inflation protection - that funds were obligated to offer.

"What about a form of DB that is DB while you work with the company, but then becomes DC when you leave?" he proposed.

He said the idea was attractive, as it would allow members to take a "big fat pot" - a phrase favoured by the minister in recent months to describe in laymen's terms his ideas to consolidate savings into a single scheme - with them when they left a company, but also meant that the occupational fund was no longer exposed to inflation and other kinds of risks.

Webb explained that the caveat of only offering DB until an employee left would remove the regulatory risk involved in future governments introducing new regulations.

The NAPF's head of policy Darren Philp previously suggested to IPE that one way of implementing defined ambition would be to allow companies to select which risk to take on board, taking into consideration whether longevity was a greater risk, or whether a potentially annually evaluated investment guarantee would be of more use.

A further idea suggested by Webb at the conference was a levy on DC schemes, allowing for the smoothing of investment returns in years when underperformance occurred.

He said that while he understood that such guarantees came with a price tag attached, it would simply be a matter of pricing any such guarantees in an affordable manner to make them attractive.

"Guarantees, certainty - even in a DC world - underpins, pooling," he said. "There is a lot that can be done there, and there's a lot that other European countries do and parts of America do. We are hungry for ideas at the moment."

Webb added that, while any such policy changes would take time, if the industry did not begin debating change now, it would "never get to the end of it".

Asked about active member discounts - whereby deferred members see their management fees increase - Webb said his solution was "largely to get rid of deferred members".

This would likely be accomplished through the introduction of 'pot follows member'.

Addressing changes proposed by the Department for Work and Pensions to the state pension, Webb said the government was "absolutely committed" to the introduction of a flat-rate payment to aid income security and encourage saving through auto-enrolment.

He indicated that several green and white papers would be published by his department imminently.

"I can confidently expect that having promised an autumn white paper, that the white paper on the single-tier state pension will be one of three important pensions documents we deliver this side of Christmas," he said.

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2444

    Asset class: Trade Finance.
    Asset region: Global.
    Size: USD 10m.
    Closing date: 2018-06-25.

  • QN-2452

    Asset class: Hard Currency.
    Asset region: Emerging markets.
    Size: USD 300 mil..
    Closing date: 2018-06-22.

Begin Your Search Here