About Us
Trustees
Policyholders
Purposeful investments
Sustainability
Investors
New & insight
About Us
Trustees
Policyholders
Purposeful investments
Sustainability
Investors
New & insight
Defined benefit (DB) pension schemes are of vital importance to the nine million people who rely on them for their retirement income. This report is about what happens to those pensions, those people, and the assets backing them.
The starting point of any discussion should always be “what is the purpose of a defined benefit pension scheme?”. The simple answer is that it is to pay the pensions of its members. Trustees decide how that is best achieved, depending on how well funded the scheme is and taking into account other considerations, such as how strong the sponsoring company is.
One route for DB pensions is “buyout”, where a specialised insurance company, subject to strict regulation, becomes legally bound to pay the pensions of the scheme’s member. They do this by investing in long-term projects like housing, infrastructure and urban renewal, which provide secure, long-term cashflows. PIC is one of those insurance companies.
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Trustees are being offered an increasing number of alternative routes for those schemes, in the name of “choice”. However, what “choice” means is that the management of DB pension scheme assets are spread amongst a wide number of different offerings with varying levels of security and expertise.
By definition, any arrangement for paying people’s pensions short of buyout has lower regulatory standards. That means the people who rely on those pensions face a higher risk that they won’t get their full pension. The alternative routes being promoted also mean less DB pension capital being invested in long-term UK assets, because fragmentation does not lead to the development of expertise.
In addition, the ability to carry more risk naturally means an investment strategy focused on global equities – like open defined benefit pension schemes, such as the MP’s own scheme. Most worryingly for the members, new rules and market developments will allow companies to remove money from pension schemes and hand it to shareholders and executives.
We believe that insurance companies buying out DB pension schemes bring great benefits to the members of those schemes, and to the UK economy. That’s why we called this report “The Benefits of Buyout”. We also believe that the alternatives to buyout would reduce those benefits to members and to Britain. This report sets out the options for DB pensions and for the country.
