A report from Cass Business School’s Pensions Institute identifies 1,000 defined benefit schemes that are likely to end up in the Pension Protection Fund as a result of sponsor insolvency.
But the report’s authors believe up to 400 of these firms have viable businesses that could survive if pension scheme regulation was tweaked.
The report, The greatest good for the greatest number, calls for struggling schemes to be allowed to restrict pension increases, and to be encouraged to find compromises with employers.
Professor David Blake, director of the Pensions Institute, and one of the authors of the report, said: “Government policy is predicated on the assumption that employers with DB schemes, over time, will be strong and prosperous enough to pay benefits in full. The report challenges this rose-tinted view.”
Blake said that, in some cases, freeing an employer from the burden of its pension fund to avoid insolvency could create extra value which could be shared with members to achieve a better outcome.
The report found that quantitative easing, low interest rates, and low gilt yields are all added significantly to the problem, especially as gilt yields were a key factor in the assumptions used for valuations.
Naomi L’Estrange of 2020 Trustees, one of the sponsors of the report, said: “There are clearly situations where all major stakeholders (members, trustees and sponsoring employers) can benefit from recognising the inability to provide full benefits from the scheme, and, in turn, looking to provide an alternative solution based on some form of compromise arrangement.”
Employers, pension managers and pension scheme trustees can find out more about this problem and potential solutions at Workplace Pensions Live 2016, which will take place at Edgbaston Stadium on 11 and 12 May. This two day conference, which is free to attend for qualifying HR and pensions professionals will explore the latest in workplace pensions.