Defined benefit pensions must be realigned with UK society’s aims, by reconnecting retired and working generations’ pension savings, says Patrick Bloomfield, Senior Actuary, Hymans Robertson, in a new White Paper.  In the paper he suggests two policy changes, to reset TPR’s statutory objectives and to enable the PPF to support future pensions as well as pensions built up in the past.  He also suggests incentives for pension schemes to invest in growth assets and generate surpluses, which can be used to subsidise better pensions for current workers at no cost to businesses. To safeguard pensions that have already built up, Patrick argues that DWP’s and TPR’s new DB funding regulations and draft code should become a threshold above which DB surplus can be accessed.

Commenting on the need for the changes outlined in the White Paper Patrick says:

“The £1.5 trillion assets in the UK’s 5,000 DB schemes have been invested defensively, which is appropriate for those schemes but sub-optimal for society. Visionary policies are needed to reorient this immense store of wealth, so it delivers pension promises and builds societal prosperity for the UK.

“This should not be done by appropriating the PPF’s assets or mandating how pension scheme assets are invested. We need policies that encourage DB schemes to re-open to new members. This would shift their investments from low-strategies suitable for closed funds, to growth-oriented strategies suitable for open funds.

“The way to do this is getting TPR to stop prioritising the security of past benefits over everything else. Instead, TPR should balance the security of past benefits with continuing to offer current workers good quality pensions. This means re-opening DB schemes,  encouraging them to invest in ways that create value and build pension surpluses.  These surpluses can be used to cover the cost of future pensions. This aligns pension scheme objectives with the government’s aim of encouraging them to invest in UK growth, without undermining the purpose that they exist to serve.

“If the government wants to encourage pension schemes to invest in certain sectors, it should do this by offering tax incentives.  But schemes, businesses and savers must be allowed to choose what happens to their own money. Appropriating pension assets or mandating how they are invested would shred what confidence UK business has in government pension policy once and for all.”