The Chancellor’s announcement of a significant relaxation of pension rules for defined contribution schemes could also be of enormous benefit to sponsors of defined benefit (DB) schemes. The Treasury is now consulting on the extent to which these changes should extend to defined benefit pension schemes.
John Broome Saunders, Actuarial Director at Broadstone, believes DB scheme sponsors should be fighting hard to benefit from these changes,
“If DB schemes can benefit from these changes, they will be able to offer more flexible options that pay out more cash, sooner, to pensioners. That has enormous benefits for scheme sponsors, especially those with crippling legacy pension liabilities, as it allows these liabilities to be settled sooner, and reduces – possibly significantly - the longer-term mortality and investment risks attached to pure pension provision.”
Such changes could have significant economic consequences. “The dilemma for the Treasury is that this could lead to a stampede. If DB scheme members are allowed to take all benefits as cash on or retirement, the reality is that many would do just this – thus requiring a massive sell-off of pension scheme assets. This could have serious consequences for the UK economy, and in particular, for public finances; many of those assets are gilts, and a fire sale of gilts could send the cost of Government borrowing through the roof.”
Broome Saunders believes that these concerns could scupper the extension of flexibility to DB schemes: “The Treasury is so worried about this that it is considering preventing DB schemes from enjoying this flexibility, and is talking about prohibiting transfer from DB schemes altogether. Scheme sponsors should resist this with force.”
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