The pensions industry must move on from its “fixation” over defined benefit pension scheme deficits, it has been claimed.

During a panel discussion on what is next for DB schemes, hosted by Hymans Robertson, yesterday 3 November, Hymans Robertson partner Patrick Bloomfield said deficits are “too readily manipulated and misinterpreted”.

“Trustees and sponsors need a clear understanding of the likelihood that they’ll pay the pensions promised and a stronger grasp on the risks they are running. The majority of schemes should have no trouble honouring their pension promises, provided they avoid overly-risky, short-term strategies."

He noted that taking less risk and tackling today’s funding issues over a longer period can deliver stable contributions for sponsors; reducing the risks of unexpected cash calls undermining businesses and pensions.

“Knowing how secure members’ benefits are and how much is at risk if the sponsor defaults is essential. It will also help members to decide whether to keep their pension in a scheme or transfer out into the freedom and choice environment.

“The current legislation and the regulator are both open to enabling this win/win. It’s for trustees, sponsors and their advisory teams to make it happen,” he added.

This view was shared by The Pensions Regulator executive director Andrew Warwick Thompson who reiterated that the recent focus on headline deficit figures “creates a perception that does not reflect the reality”.

He said employers facing difficulties are in the minority. TPR's 2016 Annual funding statement shows that generally, employer’s profits and dividend payments have increased since their last valuation date.

“That ratio of dividends to deficit recovery contributions was 5:1. This year it stands at 11:1. In our view, when taken over the longer term, the majority of sponsoring employers will be able to pay members their promised benefits,” he stated.

However, BESTrustees’ Alan Pickering contrasted this view: “UK plc is on the hook for more DB benefits than the economy can realistically support. Essentially employers are having to honour commitments which were not made by them but imposed on them by well-meaning but poorly informed politicians. We need to think through ways of helping schemes in distressed situations deliver benefits above Pension Protection Fund levels. Surely it’s in everyone’s interests if a deal can be struck that avoids companies being wound up?”

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