Increased defined benefit funding has the potential to negatively impact the retirement income of today’s auto-enrolment generation, Hargreaves Lansdown has suggested.

Commenting on the findings of the PPF’s latest Purple Book 2017, launched today, Hargreaves Lansdown senior pension analyst Nathan Long critiqued the current DB investment landscape and noted that this may harm today’s workers’ future retirement income.

Long highlighted that while final salary schemes “should be able to take the most patient, long-term view of asset allocation and risk”, they are taking on a short-term, conservative strategy instead. “Not necessarily because they think this will produce the best returns but because it reduces the uncertainty risk. The whole system is out of kilter.”

This investment strategy essentially leads to lower returns and means higher contributions are needed to make up the shortfall. As a result, employers are having to allocate more money to their DB schemes, Long explained.

“This comes at the expense of the auto-enrolment generation who desperately need higher levels of contribution directed into their modern day pensions.” However, Long added, “the reality is legacy pensions could be stifling the future retirements of today’s workers.’

Also considering the PPF’s findings, Royal London director of policy Steve Webb discussed a “deepening divide” between public and private sector workers building DB pensions.

“Private sector employers are voting with their feet, closing schemes both to new workers and to existing scheme members. Membership of salary-related schemes in the private sector has slumped by nearly two thirds over little more than a decade,” Webb said.

This is shown through the PPF’s finding that the number of active members of DB schemes in the private sector are down from 3.6 million members when the Purple Book series started in 2006 to 1.3 million in 2017.

Conversely, the number of public sector workers accruing DB pensions has increased in the last decade, Webb noted.

“Although public sector pensions have been significantly reformed in recent years, on present trends public sector workers could soon be the only people in Britain able to build up salary-related pensions.”

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