Sunday, February 26, 2017
Can we have a national DB pension scheme?
My latest article for Professional Pensions. "John Gray says we need to do all we can to preserve defined benefit pension provision in the UK
Those of us who live in the real pension world know it is true but many are in denial. For entirely understandable reasons, the pension industry just don't want to admit it. So come on folks and get out of the pension closet and collectively shout out loud that defined contribution (DC) pension schemes are usually pretty rubbish.
The government green paper on the future of the defined benefit (DB) schemes may indeed be an attempt to justify the slashing and burning of pension promises but it is also an opportunity to make the opposite case and call for a rebirth of DB.
Recently I was at the TUC annual pension trustee conference and there was a fascinating panel debate on the future of DB. Of course, the 'usual suspects' (progressive actuaries and trade union pension officers) pointed out that there is still a huge (and growing in some sectors) DB pension provision in the UK and that despite some genuine problems these schemes are still affordable, if you ignore the 'Mad Hatter' valuations and assumptions by those who confuse being prudent with being totally risk free.
I raised a question to the panel about why DB schemes are being written off when there is a contribution cap for future accrual in my DB scheme of 19.5% of payroll for employers (13%) and members (6.5%). Meanwhile our new employees, who do not now have such access, need to put away the equivalent of up to 50% of their pay (dream on) to receive similar benefits when they retire in a DC scheme.
Isn't it obvious that DB is better for workers than DC? The half way intermediate schemes such as collective DC or hybrid DB seem to be getting nowhere. There is simply no alternative to DB.
The key note speaker, economist and writer, John Kay gave a brilliant speech at the end of the TUC conference in which he admitted that he thought we had failed the modern generation on pensions. He told us about how recently he had spoken on pensions at a seminar and afterwards a young woman in her 30s had asked his advice about what personal pension she should start? The question had shaken and upset him to think that frankly, his advice should have been it was actually hopeless for her to start anything at her age.
Let's face facts. Many people who will only have access to the state pension and some DC pension savings will not be able to afford to retire. They will have to work until they drop. If they do retire (or get sacked under workplace capability procedures) they face at worse poverty for the rest of their lives and at best certainly nothing like what they would have expected as a standard of living after a lifetime of hard work. Many more will still be dependent on means tested benefits.
We have a national NHS but why don't we have a National DB pension? If the government gave it a Crown promise why can't we open up the Local Government Pension Scheme to everyone including the self-employed? Merge it with the Pension Protection Fund and private DB schemes for efficiencies and economies of scale?
The new government consultation on DB is timely and we should all respond and demand that the government acts to fulfil its duty to its citizens that they will not die in poverty in their old age. The best mechanism to do this is by modern DB schemes open to all, regulated and guaranteed by the state.
John Gray is admitted body union representative at the London Borough of Tower Hamlets Pension Board. He is writing in a personal capacity