Pensions World

Promoting high quality and secure workplace pensions is surely the right thing to do for future generations urges Lindsay Tomlinson, NAPF chairman

UK workplace pensions are now clearly in a state of transition. If current trends persist, pension provision for future generations of workers will be via defined contribution (DC) arrangements. And in his outgoing speech as chairman of the Pensions Regulator, David Norgrove acknowledged that defined benefit (DB) pension schemes were entering an end game of maturity and run off. Set these trends alongside Lord Hutton’s work on public sector pensions and the go ahead recently given to auto-enrolment and Nest and the pensions crystal ball starts to clarify.

While focusing on workplace pension provision and the move from DB to DC, a number of questions spring to mind:

• To what extent has this been driven by government policy?
• Is it the best way to go for workplace provision?
• Could more be done to morph current arrangements into a sustainable form rather than radically changing the structure?

Remember that the Coalition agreement contains a commitment to take steps to reinvigorate private pensions.

Answers to questions

To answer my own questions, I think that many employers and their people would be pleased to have the opportunity of offering benefits other than pure DC. And they would probably want to do this by altering what they currently offer rather than by radically changing it. This is not to deny that many employers will be perfectly happy with pure DC and Nest, but not all.

The remaining question is to what extent has government driven radical change from DB to pure DC arrangements? And if government wished, could it reduce the pressure?

The answer to these latter questions lies in the statutory objectives of the Pensions Regulator (TPR). TPR and the Pension Protection Fund (PPF) have been remarkable success stories. Some very capable people have in short order developed regulatory and protection arrangements which have had significant effects on behaviour and which have gone a long way to achieving their objectives.

What are those objectives? TPR’s statutory objectives are essentially to protect scheme    member benefits while reducing risks to the PPF. Further objectives are to promote good administration and to maximise employer compliance with duties imposed by pension legislation.

Note that there is no statutory objective to seek to preserve high quality pension provision for the future.

Future generations

In a time of stress such as we have experienced in pensions for getting on for ten years and in finance for around three years, the results are predictable. All the pressures have been to secure accrued benefits and to let the future look after itself. The rapid shift away from legacy DB provision to pure DC arrangements might just as well have been explicit government policy.

If we carry on in this way, in a few years’ time the UK will enjoy the best regulatory environment for workplace pensions but there will be no pension schemes! This is probably not what government was seeking to promote when it set up the current regulatory framework.

What we need to do is to give TPR a further statutory objective, that of promoting high quality workplace pensions and ensuring their health and longevity.

It is a tough ask, but it would help the government fulfil its commitment to reinvigorate private pensions. And surely it is the right thing to do for future generations of workers.

Lindsay Tomlinson is chairman of the National Association of Pension Funds;
lindsaytomlinson@blackrock.com