Defined benefit pension schemes are subject to "unacceptable levels of risks" in the current system, the DB Taskforce chair Ashok Gupta has claimed.

Speaking at the PLSA Investment Conference today, Gupta discussed how the challenges facing DB schemes can be addressed. He looked to address the misconception that is held by the collective in which society "talks about the system as if 100 per cent of members were somehow going to get 100 per cent of their promised benefits".

Instead, Gupta criticised the current system, claiming it is not "fit for the future" as it is draining billions of capital from sponsoring employers and leading to widespread misallocation of money. As a result of this downfall by the DB sector, the Taskforce aim to "minimise that risk and maximise the proportion of members who receive what they expect to".

In actual fact, this is not the case, as shown in the Taskforce's interim report, in over a third of all schemes, members have a rough 50:50 chance of receiving their benefits in full.

It was noted that at present, where members are faced with decisions including the pensions freedoms, staying in their DB schemes or taking a transfer value, it is crucial that the industry looks at clearly communicating these risks to members.

Gupta explained that the downfall of DB schemes can be attributed to four key problems, these being: the industry is too fragmented and delivers a poor approach to have 6,000 sets of people and 6,000 associated chains of advisers trying to secure their benefits for them.

The second is the rigidity of benefit design, also the binary approach to scheme resolution which means that typically schemes "can only completely fail or completely succeed" and finally the fact that members, and society, are served with sub-optimal understanding and management of risk across the sectors.

As a result, the Taskforce is now looking to consolidate all four of these issues in its second report.

It looks to make it "easier to simplify benefits to a common standard and requiring trustees to justify why current arrangements offer better value for money than consolidated ones".

One way in which these issues could be resolved in its consolidation, therefore, is through superfunds. These would be occupational pensions schemes that are authorised by The Pensions Regulator, governed to the highest standards. They will have standardised benefit structures and would ensure a minimum of 90 per cent probability of full benefits to all members.

These funds would "offer huge benefits to everyone involved" including members, employers, the regulator, the economy and other players such as insurers, EBCs, asset managers and existing pension schemes, Gupta explained.

This consolidation, along with discussion across all involved and the government is to follow in due course to address the inconsistencies and shortcomings of DB schemes.

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