Hi all,
Thank you for your comments and views over the first week of our consultation.
This week we would be particularly interested in views on one of the ideas/designs for Flexible Defined Benefit schemes - Automatic conversion to Defined Contribution schemes when a member leaves employment. (This can be found on page 20 of consultation document: https://www.gov.uk/government/consultations/reshaping-workplace-pensions-for-future-generations)
This proposed design will enable employers to provide their employees - for the period of their employment - with the certainty of a pension scheme where the benefits are defined (such as in relation to their salary) with the security of that promise being sponsored by their employer. Whilst employers will no longer have to bear the investment and longevity risks associated with providing pensions to people who leave their employment, who in many schemes greatly outnumber the number of active employees.
Such an arrangement would only apply to future benefits that accrue after the introduction of this scheme design.
So what are your views on the feasibility of this design? What might be the most suitable way for benefits to accrue under this model, and how might the benefits be calculated when transferring out of this type of scheme?
Thanks
DA Team, DWP
3 comments
Comment by terry sheridan posted on
Wouldn't this act as a "disincentive" (a factor, especially a financial disadvantage, that discourages a particular action) for those members of private sector DB schemes who are considering leaving their employer and therefore encourages a less flexible/mobile private sector workforce? I am assuming that this concept would not impact public sector employees for around 25 years.
Comment by robinson posted on
If the requirement to provide index linked pension rises, death in service and survivor benefits from DB schemes is introduced what mechanisims would be put in place to allow an individual to provide these benefits for themseleves. It seems to me that what you would be left with is a glorified form of single life annuity without the ability to buy the add ons available to DC scheme members. If this came to pass it may well hasten the end of rather than preserve DB pensions, as the difference between DB and DC schemes would be mimimal.
Comment by Andrew Young posted on
The paper sets out the arguments on the different approaches which could be taken to calculating such transfer values.
But this is an impossible task. Either
(a) the basis will be seen as requiring the TVs to be high and , like the ETV process, kill off the idea.
(b) it will be considered too low and as with the history of TVs, lead to political interference in future, making it impossible for employers to opt for it.
The paper does not say how this is to be resolved in a way which seems likley to move this idea forward. Does DWP have a plan B?