He wrote to me yesterday this mail which provides a fascinating insight into the debate over how we fund our open and closed DB schemes and the alternatives we can offer to employers for whom providing a DB pension presents insuperable challenges. I listened to the Pensions Bill committee reading as it happened on Thursday. As a result I have a few comments to share with you.
Guy appears to have been persuaded by the Regulator that this means Trustees choosing the bespoke route will be free to adopt Scheme specific assumptions without hindrance. AE has been successful in increasing the numbers saving for retirement, but has a long way to go to match the success of past DB schemes in delivering quality of life in retirement.
DC is not a pension, merely a means to have the option to purchase an expensive annuity which the majority will not take up. So to sum up Guy Opperman has and is doing a great job, but he has a blind spot, which if not challenged will lead to the hammering of the final nail in the coffin of open DB schemes.
The only solution, and I say this again, is to reduce the PPF benefits for new schemes falling into the lifeboat. Something has to give, if we want open schemes to remain open. DC schemes are great, especially for accumulation, however contributions are lower than what people used to contribute in DB schemes.
And the higher value they get, more decumulation solutions clients could get, including a CDC type. So I would say for someone age 65, a 12 β 15 years decumulation invested followed by a level annuity for another 12 β 15 years. People will find this approach more intuitive as well, as they do not see losing their high value pension pot in case they die early, and it will allow them to spend a bit more early in retirement too.
