Regular readers of our blog will be aware that in 2015, our sister company, 2020 Trustees, sponsored The Greatest Good, a report from The Pensions Institute which highlighted the acute pressure faced by many companies sponsoring DB pension schemes as they strived to meet their long-term promises. Sadly, the warnings and issues raised in that report were proved correct with the very public issues facing the BHS and Tata Steel schemes.
Two years on and Greatest Good 2 has just been published and again, and once again 2020 Trustees is one of the key sponsors. The Report authors call on the Government to shift UK pensions policy towards delivering fair pensions for the greatest number of people who are members of private-sector DB pension schemes.
The Report says that Government should recognise the reality that some workers will not get their full pension if the sponsor becomes insolvent well before their scheme is restored to full funding. It is concerned that the current policy focuses on binary outcomes of schemes staggering on in the hope of paying benefits in full, or a reduction to PPF level of compensation if the sponsoring company goes bust.
The Pensions Institute recommends a policy to facilitate ‘second best’ outcomes, allowing schemes with weak sponsors at a risk of insolvency to negotiate settlements for their members between full benefits and the level of compensation provided through the Pension Protection Fund safety-net.
It’s younger members who are most at risk of losing out if a scheme staggers on, and the PPF compensation ‘cliff-edge’ is also particularly unfair for these members. We agree that phased rules for PPF compensation levels to remove cliff edges would introduce greater equity between member cohorts. The phased approach should be based on age and length of service.
While we have great confidence in the PPF and its compensation regime, we nonetheless think policymakers and trustees alike should be brave enough to accept that early intervention to secure a better result than compensation may be the right answer– in the right cases. We also think that the PPF and its levy payers should be alive to the increased cost from schemes drifting on more in hope than expectation.
Our advice to our client is always that doing nothing is not an option when it comes to viability. If a pension scheme is in trouble, seek expert advice urgently as there are interventions that can be put in place to help.
The full report Greatest Good 2: Response to the Department of Work & Pensions Green Paper, Security and Sustainability in Defined Benefit Pension Schemes. Available here.