Pensions and Lifetime Savings Association – Industry view


Joe Dabrowski is head of DB, LGPS and standards at the Pensions and Lifetime Savings Association


CORONAVIRUS CRISIS UNDERSCORES URGENT NEED FOR SUPERFUNDS


With the coronavirus shutdown that is creating havoc on companies unlikely to be lifted any time soon, we can expect big- ger deficit jumps in the coming months as schemes face the triple whammy of falling asset prices, lower interest rates and weakening employer covenants, all set against doom and gloom forecasts for the future of the global economy. There is no obvious modern precedent for the current situation, but it seems likely that, even with substantial packages of government support, we will see greater employer insolvencies across multiple sectors, higher scheme deficits and lower interest rates for the foreseeable future. This is likely to mean increased calls on the Pension Protection Fund, the govern- ment safety net called upon to back peoples’ defined benefit pensions when their employers or former employers go belly up.


The crisis has really cut against the grain. In early March, a few weeks before the impact of the virus truly emerged, The


Pension Regulator was highlighting its desire to reduce the length of pension recovery plans and to press for faster clo- sure of deficits – which had remained ‘stubbornly high’, at 7.8 years on average, as the economy recovered from the last economic crash. And to some extent nudged along by government giving the regulator a new ‘employer friendly’ objective in response to the 2008 finan- cial crash.


Looking ahead, and at the severe economic headwinds forecast by the OBR and IMF, supporting business is again likely to explicitly or implicitly trump looking after savers or closing deficits at the real or per- ceived risk to economic growth. But it is essential that we look after savers, both pensioners who do not have the option


of returning to work if their


pension payments are compromised, and younger generations who may end up bearing the bulk of the cost of the second gigantic


economic recovery of their


lifetime. We can do that by making existing meas- ures work to some extent, but it is time to think about the orthodoxy of the current system and its consequences. The past 10 years saw employers spend more than £150bn trying to plug deficits only for recovery plan lengths to remain broadly unmoved. Do we do exactly the same again? Or do we do something different? And at what cost – to employers, to younger generations, to schemes? Our work with the DB Taskforce high- lighted the limited choices and tough compromises that schemes and employ- ers have had to make to date. Between closing deficits and company survival or


growth; between former employees, and new and future ones. If the next few years look anything like the past 10, the need to find alternative solutions has never been more acute. Making a real impact requires bolder action. The government has promised change in the form of superfunds for some time, but has stalled its progress. Superfunds are a type of consolidator whose structure would allow it to collect together several corporate pension schemes and, with the help of investor capital, run them more efficiently and cheaply than the individual sponsoring employers; the superfund will then run the schemes until either all the pensions have been paid or the scheme is financially strong enough to be passed on to an insurance company.


If the government wants to help schemes and stressed sponsors, now is the time to press on with a regime that can offer a ‘win-win’ for savers and employers. Because if things turn out to be even half as bad as the projections, having as many options available to provide savers with their full benefits is the only sensible course of action.


Design and production Portfolio Verlag


Printed in the UK by Stephens & George


Subscription rates UK £222 (9 issues), Single issue price: £27.50 Overseas €270 (9 issues), Single issue price: €33.50


Enquiries +44 (0)20 7822 8522 j.waterson@portfolio-institutional.co.uk


© Copyright portfolio Verlagsgesellschaft mbH. All rights reserved. No part of this publication may be reproduced in any form without the prior permission of the publisher. Although the publishers have made every effort to ensure the accuracy of the information contained in this publication, neither portfolio Verlagsgesellschaft mbH or any contributing author can accept any legal responsibility whatsoever for any consequences that may arise from errors or omissions contained in the publication


ISSN: 2045-3833 Issue 93 | May 2020 | portfolio institutional | 15


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48