The Department for Work and Pensions has hinted that the defined benefit white paper will focus on trustee decision making and how they can deliver clearer objectives.
Speaking at the Pensions and Lifetime Savings Association's Investment Conference on Thursday, 8 March 2018, DWP deputy director of private pensions policy Ronan O’Connor said that the DB white paper will encourage trustees to be “explicit about what they are aiming for”, so we have “real clarity” about the implications of their decisions.
Trustee decision making was highlighted in the DWP’s green paper, released in February 2017, as O’Connor hinted further that consolidation would be a major part of the DB white paper, expected in spring.
O’Connor said: “In the green paper we asked some questions over trustees' decision making, it was quite unclear at that time but I think in the last year we have had lots of people thinking about this … how can trustees and employers understand when things go wrong and what can we learn and do about them?
“I think the white paper will have to look at how trustees look at the long-term objective of their schemes and encourage them to be explicit about what they are aiming for, so we have real clarity with trustees and employers about the implications of their decisions.”
O’Connor laid out four objectives that trustees could do when managing the risk of their schemes, including buy-out, consolidation, self-sufficiency and sponsor support, with emphasis on consolidation.
“Consolidation offers for a lot of schemes an achievable way to secure members benefits and it is something the white paper will go over in setting out on how the government can work with the industry.
“The government is quite clear that consolidation has a lot of advantages and we can see a lot of it in the system already, so for us it is not just one big super fund, but is also means DB master trusts are making sure the current framework is fit for purpose.”
Industry response to consolidation has been mixed, as some have said creating a superfund “creates a moral hazard”.
Aegon head of pensions Kate Smith said: “Consolidation of weakened DB schemes into a superfund may look like an attractive option to some stressed companies, but giving employers an option to walk away from their DB schemes creates a moral hazard that needs to be treated very carefully by government and regulators alike.”