The Great Debate UK
-Simon Banks is a principal at Punter Southall. The opinions expressed are his own.-
This summer we have seen the closure of many “defined benefit” pension schemes, which provide benefits based on a formula linked to salary. They are closing because they are reliant on employer support and have either become too expensive, or have grown too large relative to the employer.
Most employees will probably outlast the business currently employing them, so a shift away from a pension model reliant on employer support may seem sensible to many. The problem is that “defined contribution” schemes, usually offered as a replacement, can be ill-suited to those lacking financial confidence.
The battleground between government and the pensions industry is therefore over “shared risk” schemes. These have been suggested as a middle-ground option that would be less onerous for employers and yet provide some useful guarantees to employees. The government regards these proposals as tainted by self-interest, and is optimistic about what member training and communication can do to improve ‘defined contribution’ schemes.
It is a quarter of a century since the ground-breaking privatisation of BT. Unfortunately, it may not be many more years before a reluctant government is forced to take the company back into state ownership.