DB Green Paper: Good arguments for more flexibility in the current system


Faith Dickson, partner at Sackers, comments:

“We believe there are good arguments for introducing more flexibility into the current DB system to enable employers and trustees to reach better outcomes for members than PPF compensation where, on the balance of probabilities, the employer will be insolvent if pension liabilities cannot be restructured.

“However robust the PPF’s funding position is, it is not appropriate legally, nor, given the potential intergenerational impact, from a policy perspective, for schemes to be encouraged to continue in their current form if in reality they are not going to be able to meet their current benefit commitments in full, and on the balance of probabilities end up in PPF assessment.

“While more members may become pensioners and so receive closer to their full benefits in the PPF, deferred members may well end up having their benefits cut back further in the PPF. This could be avoidable if their current schemes are able to restructure benefits for all members.  Trustees, with their legal duty to consider the interests of members as a whole, are well placed to assess ways of restructuring pension benefits to enable outcomes that are better than PPF compensation for a scheme’s membership overall.”

Background

The DWP Green Paper on private sector DB pensions, “Security and sustainability in DB schemes”, sets out evidence about key challenges facing DB schemes and considers feedback from commentators. The consultation asks whether there is a case for making special arrangements for schemes and sponsors in certain circumstances and/or new or enhanced flexibilities for stressed sponsors and schemes. For further details, please see Sackers’ Alert and response to the consultation.

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