Gov’t looks to help DB schemes mitigate longevity risks

CityWire.co.uk
By Brian Cantwell

The Department for Work and Pensions (DWP) has promised to give employers more flexibility to decrease exposure to longevity in defined benefit (DB) pension schemes.

Bridget Micklem, head of private pensions policy at the DWP, said the government would look at allowing employers who ran final salary pension schemes to ‘carve out’ certain benefits currently promised to employees to make the schemes more affordable. [EXPAND Read more]

‘We are looking at carve outs and overrides for employers in much more depth to reduce the exposure to longevity and keeping it in line with the actual size of the workforce,’ she said.

‘We are open to new regulation to clear the path for defined ambition.’

In November 2012 the DWP outlined plans for defined ambition (DA) schemes.

DA pensions would be a half-way point between DB and defined contribution (DC).

DB has become too costly for most employers, some struggling under spiralling pension fund liabilities, while DC schemes have been criticised for putting too much investment risk on the individual member.

One way to create DA schemes is to water down DB, by relaxing DB rules.

The DWP has previously proposed

  • Removing spousal benefits
  • Converting the value of a member’s DB pension in to a DC cash sum when the member leaves, retires or dies
  • A ‘fluctuating’ pension where most of the retirement benefit comes under a lighter funding regime
  • Linking retirement age to state pension age increases [/EXPAND]