"Working for 'better' even in inflationary times when most increases are capped at 5 per cent is something most trustees have convinced themselves is not part of their job.”
Unless advisers, scheme members and current employees protest, every DB scheme will wither on the vine and disappear. As McGrath says: “When boards of sponsors and trustees know that their actions are being watched, they will sit up straight, focus.”
The danger is, with more professional trustees appointed, sometimes even sole trustees and fewer member trustees on trustee boards, professional trustees may be too conscious of who pays their bills (the employer) rather than acting always in the best interests of the members – their fiduciary duty.
The Department for Work and Pensions, in its February 23 2024 consultation (Options for Defined Benefit Schemes), says: “As part of this work, we will ensure that the assets held in UK pension schemes can work harder for scheme members, provide a secure retirement and support the growth of the wider economy.”
The consultation recognises that “there is potential for trustees to share surplus with scheme members and sponsoring employers in recognition of their historical contributions”.
McGrath goes further: “Make 2 per cent per annum of assets available to benefit all stakeholders. Government, led by HM Treasury, has a new mindset on pensions. Out goes “reckless prudence” and “the safest graveyard” in favour of productive assets and intergenerational fairness. Pension consultants and trustees addicted to risk transfers to life insurers are starting to see virtue in 'run on'”.
Stewart Hastie, partner at Isio, the pensions advisory business, says fully funded schemes could create value of 17 per cent of scheme assets over a 10-year period. Sponsors, employees and members could all share in any pay-outs.
If you want your clients (and their children) to have the best possible pension, start writing to every DB scheme trustee with whom you have a connection and quiz their rationale (if appropriate) for cutting accruals, refusing any discretionary benefit, and far worse, preparing to close the scheme.
Stephanie Hawthorne is a freelance journalist and former editor of Pensions World
