Protecting Defined Benefit Pension Schemes
26 March 2018
The Department for Work and Pensions (DWP) has published a paper which explains how the government intends to increase the protections for defined benefit scheme members and make improvements to the system.
“A defined benefit pension is a promise made by the sponsoring employer to a scheme member that they will pay a predetermined level of pension, regardless of socio-economic factors.”
This paper follows on from the consultation ‘Defined benefit pension schemes: security and sustainability’ and ‘sets out government plans to:
Protect private pensions through a stronger Pensions Regulator
Clarify scheme funding principles
Create the right conditions for, and promote the benefits of, consolidation
There have been significant changes in the structure of the overall pension landscape recently, with the introduction of automatic enrolment and the growth of Defined Contribution schemes. This has meant that the Defined Benefit (DB) pension sector has changed over recent years.
The paper reports that the majority of DB schemes are now closed to new members; however, with around £1.5 trillion assets held under management by DB schemes and around 10.5 million scheme members relying on DB pensions for a substantial portion of their expected retirement income, they remain of critical importance. Furthermore, DB pension schemes are also an important part of the UK economy as they can provide the investment needed to fund new businesses and finance public debt.
Despite a few recent high-profile cases, the DWP’s findings, and most consultation responses suggest that there is no systemic problem in the regulatory and legislative framework that governs them. However, there are examples of sponsoring employers misusing this flexibility and sometimes benefitting at the expense of pension scheme members.
The Government is determined to ensure we have a corporate governance framework that works for both employers and employees and wants to reduce further the risk of major company failures occurring through shortcomings of governance or stewardship.
Access the DWP’s paper Protecting Defined Benefit Pension Schemes.