The death knell for defined benefit pension provision has been tolled many times, even if the final 'coffin nail’ has not quite yet been hammered into its lid.
Millions of ordinary workers, from journalists, railway workers to shop assistants in WH Smith, enjoyed DB pensions without appreciating just how good a perk they were, until it was almost too late. What a failure in communications.
Sadly, we have almost reached a tipping point when there will be no return from the DB pensions underworld. Most of the 5,000 surviving schemes will close within 5.3 years, according to Barnett Waddingham’s DB End Gauge index.
Is retirement roulette the best we can offer our children and grandchildren? By then the average DB scheme will be able to buyout their liabilities, predicts Rob Hammond, director at BWD (and author of the "Ask the Actuary" blog), in FTAdviser’s sister magazine Pensions Expert.
The golden generation
I am one of the post-war baby boomer cohorts (born between 1946 and 1964). With the benefit of hindsight, we were so lucky – although it didn’t feel like it at the time, with roaring inflation, high interest rate and foreign travel restricted to only the wealthiest in society.
There were also tough constraints on foreign currency: £50 was the maximum you could take out of the UK. At 17, and an impoverished student at Paris-Sorbonne University, I wrote begging letters to my parents to send extra cash to support me in expensive Paris – an occasional £10 note stuffed in an Air Mail letter kept me afloat.
As an industry we cannot do much about job security, but we can and should safeguard pension provision.Exchange controls were not abolished until 1979, perhaps their suspension was one of the most successful financial reforms of my lifetime.
Most UK working adults today have no experience of sterling as ‘a basket case’ currency with frequent crises dominating daily newspaper headlines.
Mobile phones too were the stuff of science fiction – each personal handset today has more computing power than NASA had at its disposal to aid astronauts to conquer the moon in 1969.
Even with black and white television until 1967; I remember going to a rich friend’s house that year to watch Wimbledon tennis broadcast in colour, for the first time – what a revelation and what a difference from the all-pervading grey hues.
Most people then had 'jobs for life' with affordable housing including plenty of council stock, as well as decent pensions. The 'gig economy' meant a Beatles performance, rather than casual Deliveroo or Uber work.
DC pensions are, for the most part, totally unsuited as the main retirement vehicles for millions of today’s ordinary workers.As an industry, we cannot do much about job security or indeed build more homes – but we can and should safeguard pension provision.
As I highlighted recently in the Mail on Sunday, DC workplace pensions have largely become a game of retirement roulette, with a huge disparity of outcomes. This is so shocking when auto-enrolment is a quasi-compulsory system with few employees having a choice of pension provider.
Retirement roulette
Is retirement roulette the best we can offer our children and grandchildren?
Sam Roberts, director of investment consulting at Cartwright Benefits Consulting, says it is wrong and unfair that people need to be an expert in their day job to earn money for their retirement and also be business and investment experts to grow their savings faster than inflation to ensure their savings retain value in retirement.
He adds: "The deck is stacked against the majority of the population from the start, so is it any wonder that we use our houses as savings accounts and use debt to try to keep up?"
What a pyrrhic victory for workplace DC pensions.
Can any government resist the temptation not to change the rules? "As the weaknesses of DC are exposed over the next five to 10 years, there will be a temptation to revert back to DB or create new short-term fixes such as 'DB lite' or DB/DC hybrids," warns Roberts.
“This may temporarily help in some cases, but like squeezing a balloon, it moves (and can hide) the complexities and risks rather than reducing them."
He points out: “The Dutch model of sharing risk through discretionary pension increases is the closest version I’ve seen that could achieve a reasonable balance between member understanding and risk.”
Indeed, UK pension schemes enjoyed this sharing model in the 1980s before the government required guaranteed inflationary pension increases to compensate for inflation.
But can any government resist the temptation not to change the rules?
I don’t know. I do know that today’s workplace DC pensions are, for the most part, totally unsuited as the main retirement vehicles for millions of today’s ordinary workers. Their parents would probably have enjoyed a decent pension to go along with the fabled gold watch on retirement. Why can’t we do even better for their children?
We cannot go on as we are. Yet I only hope Roberts is wrong when he predicts: “We won’t find a satisfactory solution for widespread pensions provision until we find an equitable alternative to the current unbacked and inherently unstable and lop-sided global monetary system.
“Until then, our pensions and savings industry will sadly and frustratingly need to continue to lurch from one sticking plaster to the next to make the best of a bad situation.” What a shocking indictment.
As a pensions journalist, I have been in the middle of tornadic DB pensions storms from 1989 to now. My role is simply to pose questions. Yet there are so many talented and brilliant individuals in pensions; great advisory and world-class institutional investment firms too, learned associations, experienced regulators and capable politicians of all hues.
Who among them will secure our financial future? Who will pick up this gauntlet and square the tortuous circle of making UK retirement provision fit for the next generation and generations to come?
Stephanie Hawthorne is a freelance journalist
