The Grr in the Green Paper

103 pages (106 in pdf format) and c50,000 words represent the Government’s latest take on DB pensions in the private sector. In 177 words, here are 4 things about it that make me want to say Grr.

Grr 1 – Nobody can sensibly disagree with wanting a system that is sustainable, affordable and protects members but this seems further away than ever despite the legislation and regulation to date. It is difficult not to be cynical and say this is because of the legislation and regulation and more Government intervention is unlikely to help.

Grr 2 – Allowing ‘underfunded’ schemes to suspend or lower indexation could have the effect of inadvertently rewarding schemes who adopt a riskier funding/investment strategy. It is naïve to think this will not put trustee boards and sponsoring employers on a direct collision course.

Grr 3 – Sustainable and affordable are not words that relate to DB schemes. If this is what is wanted there is one form of pension that will deliver it and is called DC.

Grr 4 – I wish the Government would stop side stepping the same issues with public sector schemes as the financial challenges facing UK plc are very scary. This is a pet subject of mine and one I will no doubt return to in future blogs.

Supreme Court ruling may not be the last

I have been (and continue to be) critical of the unaffordable cost of public sector schemes and their need to wake up to reality and reform. The recent Supreme Court ruling on the payment of survivor benefits to unmarried partners will inevitably have cost implications but in this case, is a price worth paying. Nobody can seriously believe the ruling is anything other than a victory for fairness and common sense. Indeed, it begs the question how a dispute over the completion of a nomination form could end up in the Supreme Court.

However, I will not be surprised if happens again in connection with the payment of death benefits from a public sector scheme. Let’s not forget that a lump sum is payable on death, usually a multiple of salary if a contributing member, in addition to a survivor pension. The size of public sectors schemes means the administration must be process driven to the point of being mechanical. If the computer says no, it’s a no.

The reliance on a nomination form means the lack of discretion, and I use the word advisedly, leaves the process open to a potential legal challenge. It is no longer fit for purpose in the modern world for people who may be divorced or are married but separated. There may also be children from previous marriages/relationships of both partners to consider. It is unrealistic to expect everyone to have completed a nomination form much less keeping it up to date following a change in circumstances.

The model required is the one in private sector schemes (the well governed ones at least) that have a discretions committee. Here, the nomination form is only one part of information collected to establish the individual circumstances of the deceased. This is to ensure that as far as can be established, any payments are made to the right person and where there is more than one, in appropriate proportions. No process is perfect but the ruling has highlighted a clear need of reform that is long overdue if the schemes are going to be relevant for the 21st century