[jon_spain] [DWP_greenpaper_2017]

On 20 February 2017, DWP launched a green paper entitled “Security and Sustainability in Defined Benefit Pension Schemes”, with responses due in by 14 May 2017. Having previously advised trustees and employers about funding defined benefits pension schemes from within private sector actuarial consultancies, I had then been employed by GAD for 27 years. Presented entirely personally, my views may well have differed from those held by other actuaries working within GAD at the time, including those advising DWP in relation to that consultation.

Nor do my views appear to be widely held by the actuaries officially representing the UK actuarial profession, at least not yet. It is important to note that the main DB funding problems currently faced stem from the 2003 EU Pensions Directive, upon which UK actuaries provided advice so perhaps this did stem from HM Government's policy choices or deeds.

Having borrowed or stolen from many others, who may also not agree with me, I am grateful to all of them. My submission is in two parts, a shorter note  (PDF) and a longer presentation (PPTX). My four recommendations were as follows.

Personal Response To Question 1   For forward budgeting purposes for periods of time of, say, at least 10 years, the UK DB regime should be amended in three ways.

1.  The requirement that assets be taken at market value should be removed.

2.  Where the trustees and sponsors agree to use stochastic cashflow projections, the requirement to show a discounted capital value of future benefit cashflows should be removed.

3. Where discounting is to be used, it should be made more explicit that linking the discount rate to bonds needs to be specifically justified as appropriate. Any discount rates should be realistically based upon assets (as already specifically permitted).

Personal Response To Question 2   Funding defined benefits is a highly complex issue. There is no point in linking the funding requirements to what most members can be expected to understand because that will lead to too much simplification. To quote Einstein, the material provided should be as simple as, but no simpler than, sensible.