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If you love something,
set it free

Alex Waite

To misquote the philosophical genius that is Sting: “If you love something, set it free" - this is a lesson that the DWP could learn as part of their consultation on new pensions regulations, rather than pinning yet more stakes in the coffin of defined benefit pensions.

Perhaps Liz Truss has the right idea - let’s set light to the over-regulation of industries that used to work just fine before the Government came to help!

Before the turn of the century, companies failing to deliver on their pension promises wasn’t a narrative in the media. Today, companies such as Carillion and BHS have been brought to their knees by pension promises that have been ramped up by the Government, with retrospective effect.

For example, the UK is the only country in the world to mandate lifetime inflation protection for any pension promises (and this law was significantly retrospective in its application).  Back in the 1980’s companies were free to promise what they wanted, and fund promises how they thought prudent. And then the Government got interested. As Ronald Reagan said, “the 9 most terrifying words in the English language are ‘I’m from the Government, and I’m here to help’”.

Where we are now

The Government recently launched yet another consultation on how they can reform the UK’s ailing and over-regulated defined benefit pension system. There seems to be two ways to go:

1 - Look back to the heyday of when the system was largely unregulated and hugely successful,

or

2 - Carry on with the onslaught of more micro-legislation, much of which will probably never be used in practice.

The DWP suggests the latter path. Undeterred by the failure of layer upon layer of existing legislation (1973, 1975, 1985, 1986, 1988, 1993, 1995, 2004, 2007, 2008, 2011, 2015 to name but a few) and forthcoming additional rules from the EU in January 2019, in their view what is required is: more legislation, more criminal offences, and more regulatory powers (which will rarely be used in practice, most likely).

A new way forward?

What about the alternative? How about a return to the world where moderating judgements were made by sensible lay Trustees, rather than politicians and expensive lawyers? How about stripping away layers of legislation, rather than adding more? How about some common sense about how we treat employees, and former employees, rather than introducing more bureaucrats to the process?  With hindsight, the defined benefit era was a time of “over-promised” benefits, which are now benefiting from “over-protection”.

A typical defined benefit pension scheme will have some pensions increasing at well above the level of inflation - even though this was never the policy intention. On average, pensioners are now paid more than employees. Surely that cannot be justified, or sustainable?

Very strangely, in the UK, we seem to be much more interested in protecting the last pound of past promises, rather than making sure we can afford to help future generations of pensioners in retirement.

I say, let’s look at the alternative approach: “what defined benefit pension regulations can we put on the bonfire?”. If we truly love defined benefit pensions, we should set them free - rather than continue to lock them up in a gilded cage, where they are sure to carry on wilting, until they die.