Pensions - Articles - The defined benefit odyssey

Defined benefit (DB) pension schemes are widely acknowledged to be in decline and entering an era of run-off. However, as is often the case with pensions, the timeframe over which this is expected to play out is, shall we say, a little longer than you might think!

 Jane Ralph, FIA, Associate at Barnett Waddingham

 Couple this timeframe with the quantum of exposure UK companies have in aggregate to DB pension schemes, then you start to comprehend the challenge ahead.

 “The Institute and Faculty of Actuaries recent working party quote around £1,800 billion of liabilities.”

 An organisation that identifies part of its business as in decline wouldn’t continue to adopt the same strategy or invest the same capital in this element as it would to the growth side. However for many, the DB pension scheme continues to absorb not just the same but increasing amounts of capital, management time and (often unwanted) external market attention. More surprisingly, despite the anticipated demise, it is rare to find a comprehensive structured DB pension scheme exit strategy which has been robustly tested.

 At the forthcoming FT CFO Dialogues event, we will share information on past trends and look at future predictions for DB pension schemes to illustrate the expected lifecycle of the current 5,500 plus DB Schemes which are the responsibility of UK companies. We will set out a framework for sponsors, working with their trustees, to set a clear, well-tested and achievable exit strategy. We will explore the possible future outcomes for each of these scheme and how we expect payments to members and transfer of liabilities off the company books to play their part in the emerging journey. 

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