This is an article I wrote on behalf of the AMNT in defence of Defined Benefit Pension schemes
for all. It was published in
Engaged Investor in its December edition.
"While the Association of Member Nominated Trustees (
AMNT) has no formal view
on the dispute between the Government and the public service unions, many of our
trustees are strong supporters of defined benefit (DB) schemes.
In fact, one of the most active AMNT working groups is dedicated to defending and promoting DB schemes and almost exclusively comprises private sector DB trustees. This group is convinced that DB should remain the cornerstone of occupational pension provision.
DB trustees are also concerned that the often inaccurate media attacks on
public sector DB schemes are having an adverse impact on the standing of their
schemes with their sponsors.
It is often forgotten that alongside the six million workers in the public
schemes there are still 2.4 million continuing to build up DB benefits in
private schemes. It is important that
the pension myths about all DB schemes are exposed and countered.
The first myth is that DB is “
gold plated”. The average local government pension is only £4,000 per year while the average retired female NHS worker’s pension is less than £2,800 per year. The maximum that many retiring today will
get in typical DB schemes is half pay and a lump sum typically 1.5 times their
final salary. Are people really saying half pay after a lifetime of saving is
too much?
Another myth is that DB is too expensive. Future employer contributions for
many schemes are less than 14% and with some, such as the NHS’s scheme, it has
already been agreed that employer contributions are capped at 14% and any future
increase in cost will have to be wholly met by the employees.
In the absence of compulsion, unless we have pension schemes which are
attractive to employees then people will simply not join or opt out. This will
leave the taxpayer with an even greater bill to support these people on the
poverty line when they are old.
Nobody is arguing that DB schemes are perfect, or that hugely damaging
mistakes were not made in the past. Deficits for past accrual are often confused
with future costs of DB, however. Most DB trustees remain convinced that people want a degree of certainty in
their retirement. They want to share the investment risk with the employer and
the state, not to personally bear the brunt of it.
There are many changes that could be made to improve DB. These could include
merging DB funds and schemes; bringing together the 100 or so different local
government pension schemes. We need changes in the accounting standards that currently treat century-long
pension benefit liabilities as if they were a credit card bill. We need to get a
grip on spiralling fees. We need to improve governance and make sure that savers
are not ripped off in future financial scandals.
The real scandal in pensions is not DB schemes but the two thirds of private
sector employers who do not pay a penny towards their employees’ pension and the
50% of private sector workers who have no pension provision whatsoever".
“Those who argue that unions wanting to negotiate – the
majority – have ‘sold out’ and undermined trade union solidarity need to get to
grips with the complexities of public sector pensions, serious areas of
weakness in membership density and organisation, sectoral bargaining
arrangements in the public sector. Only when they have done that should they
decide whether there is a route to getting everything we want through
industrial action". 
