Pensions - Articles - Comment on OECD warning on pension solvency - JLT

 “The OECD is right to point out that solvency levels for pension schemes are far lower than they ought to be and there are significant risks in our system with the possibility of significant financial fall-out if things go badly wrong. It is possible the solvency deficit for UK private sector schemes is in excess of £1 trillion.

 “This issue raises the fundamental question of how a pension "promise" should be presented to members if there is a clear risk of not being able to deliver on that promise (and that risk will be much greater for some pension schemes than others). There is an inherent dilemma here - if you make a lot of noise about risk and the possibility of defaulting on a pension promise, you could undermine confidence in the principal employer supporting the scheme and precipitate a crisis.

 “Equally, at a macro level, if the Pensions Regulator responded to concerns from OECD on the poor level of funding of pension schemes and increased pressure on employers to take less risk and fund their pension schemes better, this could force some of the weaker employers into bankruptcy and put downward pressure on equity prices (as cash was diverted from shareholders to pension funds) and make matters worse - as deficits widen as a result.”