Do Defined Benefit Pensions represent the best way of providing for the working population’s retirement provision?
Scene setting
This article is conscious that the pressure on final salary schemes has been mounting steadily and, especially over the last few years, has become very significant for many schemes.
We are also aware of the cyclical nature of pension scheme design globally. For example, high price inflation brought severe criticism for some defined contribution schemes, since they were seen to provide unreasonably low benefits. In a number of cases, the reaction was to set up final salary plan that would avoid the problem.
If you’re interested in this type of content, in the coming publications we would go on to examine the following questions:
– What are the fundamental issues affecting pension scheme design?
– What are alternative design options?
– What is the impact on members?
– What are implications for employers?
– Can solutions be found which spread risk more evenly between interested parties?
Pressure points
Final salary schemes are now coming under pressure from variety of sources which:
– act to increase the cost directly;
– act to increase the cost volatility; and
– complicate the running of the scheme.
These pressure points, should we have demonstrable interest from you, our reader, will look into more detail the below.
A. Lower Investment Returns
B. Living Longer
C. Benefit Compulsion
D. ‘Open-Ended’ Liability
E. Minimum Funding Requirements (MFR)
…..
F. Benefits on Wind Up
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