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The Actuary The magazine of the Institute & Faculty of Actuaries

Legislation destroying defined benefit (DB) pensions?

The government has stated in the past that it aims to shift the balance between state and private pension provision from 60:40 to 40:60 by the year 2050. The most significant unintended consequence of the Pensions Act 2004 is that measures designed in theory to shore up the occupational pensions sector, in practice risk undermining it and hastening its demise. This is the overarching conclusion of a report entitled ‘Pyrrhic Victory? The unintended consequences of the Pensions Act 2004’ published last month by the Pensions Institute and Cass Business School.Key findings include:

  • The Act disconnects the historic alignment of the interests of trustees and the sponsoring employer.
  • Company directors are likely to withdraw from trustee boards.
  • The new requirements for trustee knowledge and understanding (TKU) may alienate older, highly capable trustees.
  • The business model of actuarial and investment consultants is under scrutiny and is expected to change.
  • Clearance is likely to favour trustees but create problems for employers.
  • There are serious doubts over the longer-term viability of the PPF.
  • Employers feel they have lost control of their DB schemes and will close to future accrual.
  • To proceed with confidence employers need the flexibility to design benefits that are appropriate to their size and financial strength.

More on this report can be found at www.pensions-institute.org.