UK – Public sector pensions should gradually shift to greater risk-sharing, culminating in pure defined contribution (DC) arrangements, according to the Centre for Policy Studies.
In a new paper critical of the increasing negative cashflow predicted for the unfunded local government pillar, author Michael Johnson argued that the current reforms would only stand until 2020 – in contrast to predictions from chief secretary to the Treasury Danny Alexander's pledge that reform would not be necessary for more than two decades.
Johnson – who has repeatedly argued for the public sector pension system to be replaced with DC funds and has previously suggested that the National Employment Savings Trust could serve as a new cross-government fund – said such a shift would "at long last" establish a pensions regime where both private and public sector employees were on even footing.
The author further argued that tax receipts would make up an ever-increasing part of cashflow shortfalls caused by benefit payments exceeding contributions.
"In 2005-06, it was an irrelevant £200m (€250m), before growing to £5.6bn in 2010-11," Johnson said.
"By 2016-17, the [Office for Budget Responsibility] expects it to have increased to £15.4bn – a 77-fold increase in 11 years."
The government has repeatedly dismissed any suggestion that public service pensions should shift to a DC model.
Alexander recently told parliament in a debate on the public sector pension reforms that the costs of such a switch would have been "enormous and very disruptive".
In other news, a joint report by Mercer and the Institute of Chartered Accountants in England and Wales (ICAEW) has noted the detrimental impact of large DB pension benefits on a company's ability to invest in its own growth.
The report, 'Living with Defined Benefit Pension Risk', found that more than half of respondents said the DB fund would have a "negative impact" on the company's financial performance.
According to Mercer senior partner Ali Tayyebi, the situation was made worse by the perceived impact of the Bank of England's quantitative easing and the low-yield environment facing investors.
"The current environment, which emphasises the need for a clear risk management strategy, is also the one in which it is most difficult to implement de-risking strategies," he said.
"Companies are concerned about being locked into low interest rates, and the scope to increase cash contributions to their pension schemes in the current environment is limited."
Robin Fieth, executive director at ICAEW, added that it was "vital" for companies to be proactive and balance schemes' needs with those of the business.
"That's why we believe the Pensions Regulator may in future need to allow companies with schemes like these to take more account of wider economic factors when considering the duration of recovery plans, so that businesses are able to invest in growth and job creation."
The UK business lobby group CBI has previously suggested that the regulator should see its statutory objectives amended to place greater emphasis on the continued prosperity of business.
The regulator has itself dismissed the demand, arguing that it already balances the needs of scheme members, companies and the Pension Protection Fund.