Pensions - Articles - Comment on Resolution Foundation DB research

 “These figures are not a surprise. Defined Benefit pension schemes have cost more than anyone ever thought that they would. There are three reasons for this – equities are now at half the expected levels predicted in 2000, interest rates have added over 50% to liabilities while longevity increases have added a further 10-15%. Cash clearly does need to be diverted to address the deficits. The deficit figures are so substantial that it is not a surprise that this is affecting take home pay. It is imperative that companies manage their pension risk better in future to prevent this recurring. Otherwise pouring cash in to plug the gaps will be in vain. If we continue with the status quo, we estimate a 1 in 4 chance of no deficit improvement in 20 years’ time.

 “The employees who are seeing the reduction in pay while companies divert these funds are unfortunately often the very same savers who are facing massive shortfalls in their own pensions. Our calculations show that three quarters of those in DC pension schemes are not saving enough to provide them with an adequate income in retirement. The cost of meeting legacy DB promises is one drag on corporate spending and stops the budget for DC contributions rising.

 “The requirement to pay cash to schemes is unlikely to change any time soon. In fact, the direction of travel for regulation following the fallout from BHS is for more cash from sponsors sooner. This is writ large across the Pension Regulator’s recent annual funding statement, which appears in tune with the recent Green Paper on DB sustainability and the Conservative Party manifesto.”