According to Charles Cowling, Chief Actuary at Mercer, it would not be an overstatement to say that these regulations would force ‘an accelerated end-game of UK DB pension schemes over the next 10-15 years.
“The potential impact of these new regulations would be significant and dramatic,” said Mr Cowling. “The draft proposals would force the sale of £500 billion of return-seeking assets, the majority being required before 2040. This could see approximately £200bn of liabilities added to the balance sheets of employers with DB schemes over the next 10-15 years.
“The regulations would significantly accelerate the buy-out of DB pension scheme liabilities, such that we might expect to see the demand for the settlement of up to £200bn of pension scheme liabilities each year for the next 15 years.
“What isn’t clear yet, is whether this accelerated demand could be met by current market participants.”
Mr Cowling added that while Mercer welcomes moves to a safer, more secure pension environment, it has also warned the present proposals come at a high cost and with implications for both trustees and members.
“The current proposals focus on DB pensions, rather than defined contribution schemes (DC) that millions of people currently working will rely upon in future,” added Mr Cowling. “While we welcome efforts to encourage a safe and secure environment for member benefits, this should not come at cost of diverting scarce employer resources from the DC schemes that will deliver people’s pensions in the future.
“If adopted, these draft government regulations will significantly change the pensions landscape and make the operation of DB schemes more challenging, particularly smaller schemes.
“Trustees work in the interest of securing members’ benefits and must be given the flexibility to take steps necessary to deliver on this responsibility in a proportionate and appropriate way.”
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