A new amendment to the Pension Bill going through Parliament could mean that The Pensions Regulator (TPR) will become responsible for promoting defined benefit (DB) schemes to savers wherever possible.
Lord McKenzie proposed the change under the ‘regulator’s objectives’ section. It requires the government to produce a strategy to protect public sector DB schemes within six months of the bill becoming an act.
Defined benefit schemes are not generally available any more, other than to workers in public service. Otherwise known as final salary schemes, they guarantee a pension for life based on the saver’s salary when they retire.
The alternative defined contributions model is also an occupational scheme, but one in which your contributions and your employer’s contributions are both invested and the proceeds used to buy a pension or other benefits like an annuity on retirement.
Is extra protection needed?
Some experts have been puzzled by the need to changed the rules, saying public sector DB schemes did not need any extra protection.
Senior analyst Tom Selby said: “I’m not exactly sure what kind of extra ‘protection’ public sector schemes might need given they are among the most generous available and guaranteed by the taxpayer.
“If anything it is taxpayers who need protecting from the rising cost of supporting unfunded pension promises to public sector workers.
“In terms of promoting DB membership, members need to understand the value of their guaranteed pensions and the implications if they choose to give them up – which is why the advice requirement on DB transfers exists.”
He argued that direct contribution pensions also offers benefits, especially flexibility and potentially advantageous death benefits – and said savers should be made aware of them too.
Expert Ian Browne said more effort should be placed on restoring the reputation of the pension system which has been tarnished by recent events.
Safety and soundness
He said: “The role of industry regulators is primarily to ensure the safety and soundness of pension schemes and to punish those who cause harm. However, there may be more that regulators could do to support and enhance the public reputation of pensions, in addition to their existing oversight and regulation responsibilities.
“The proposed amendment to the bill could create a welcome new source of promotion for the merit of pension savings, with the industry regulator asked to promote scheme membership and its benefits.”
“We would caution that the amendment only refers to promoting DB schemes – presumably in the interests of ensuring those savers with gold-plated pensions fully appreciate the value of the benefits to which they are entitled – but that promoting pension should span all kinds of retirement saving, including DC pensions which are the bedrock of the government’s flagship auto-enrolment policy to get more people saving for retirement in DC schemes.”