Members of defined benefit (DB) pension schemes are concerned government plans to allow employers to extract surpluses could put their retirement at risk, according to new research.
The polling of 1,000 DB members, by Pension Insurance Corporation (PIC) shows that the majority of the 8.8m people with DB benefits (60 per cent) fear these plans would create risks additional risks for them. When asked about the purpose of pension assets, 56 per cent said they want money in their scheme to benefit them, not be given to employers.
This PIC research found that the overwhelming majority (94 per cent) are opposed to government interference in how these schemes are run. In contrast only 8 per cent of members said trust politicians to take decisions that affect their pension incomes.
PIC, a specialist insurer of DB schemes, said the polling shows that members’ priority is the security of future benefits, with 96 per cent saying certainty about their level of pension is “very important” or “important” to them. The same proportion said having a secure pension income that is not not affected by financial markets is also “very important” or “important”.
These concerns were particularly prevalent among older savers, with 70 per cent of members aged 55 or over opposed to employers being able to extract surplus funds.
The PIC points out that these member concerns are not unwarranted – the original Government consultation on the surplus extraction policy says: “Any extraction of surplus will reduce security for members”.
Ministers are drawing up plans to allow the companies that sponsor DB pension schemes to receive “surplus” cash from those schemes, saying this could unlock new investment in the economy. However, PIC says that early evidence from companies getting access to surplus money shows they are more likely to pass the funds to their shareholders.
It is only recently that DB schemes have started to move into surplus, with the majority now moving out of deficit. However over the previous 20 years many DB schemes have had sizeable deficits, with sponsoring employers often having to make additional payments into these schemes.
While members had little faith in politicians there was considerably more support for trustees, with 90 per cent saying it was important they looked after the pension funds, meaning employers can’t get access to the money in the scheme.
PIC CEO Tracy Blackwell says: “We think the views of DB members, many of them elderly, many of them classified as vulnerable, should be properly considered in any decision about a policy that the Government’s own document says would reduce the security of their pensions. So far, their voices have been entirely absent in this debate.
“What this polling shows for the first time is that many of the people who rely on a DB pension are afraid of changes that could make their pensions less secure.
“It took a long time to build up a legal regime for DB pension that puts members first, after the scandals of the 1980’s and 1990’s. Members are clearly concerned at the prospect of these vital protections being watered down and I would advise them to write to their MP about these proposals.”
She adds: “Finally, it is right for us to acknowledge that like all the other participants in this debate, PIC has an interest in the outcome. We take on DB schemes and pay the pensions of 400,000 people, and have paid more than £16 billion to our pensioners so far. Our view is that it is fundamentally right that members’ benefits are fully secured before the sponsoring employer gets any cash back – a position which should align everyone’s interests. Minsters need to be very careful with this issue given that this is about the financial wellbeing of generally older, and potentially vulnerable, people.”
