Momentum Conference 2012: Review of Workshop B3: Pensions debate: The current regulatory market is killing DB pensions provision
Momentum 2012: Review of Workshop B3: Pensions debate: The current regulatory market is killing DB pensions provision
Speakers: John Cockerton and Edwin Sheaf, Towers Watson
Summary by: Stephan Le Roes, Consultant, Towers Watson
The session was kicked-off with each presenter giving their view on the topic statement.
Disagreeing with the topic statement
Edwin argued that the extensive regulation reflects the true cost of DB provisions and that the true cost was previously understated.
Edwin also gave a brief history of pension regulations which was very insightful given that very few of the audience members were in the industry 20 years ago.
Edwin’s presentation was very entertaining as he successfully incorporated humour.
Agreeing with the topic statement
John argued that the regulation is killing off DB pensions, preventing any innovation in pension provisions and that the current provisions are too complicated.
He also mentioned that by placing a debt on a company, which is managed by some “well-meaning individuals”, discourages companies from providing these provisions.
Floor discussion
The opening statements were followed by some lively discussions from the floor. A few notable statements were:
- Indexation and escalation should never have been guaranteed, but rather linked to funding levels.
- Protecting the accrued benefits of members who have left employment does not make sense. Why should a company pay for a benefit (and possibly go insolvent if they can’t afford the benefit) for an employee who now works for a competitor?
- Actuaries are to blame as they did not inform the stakeholders of the downside risk in the good times ie 1990s.
- EU legislation and Solvency 2 will be the final nail in the coffin.
- It was acknowledged that all this regulation generates a significant amount of work for actuaries.
- It was also acknowledges that DB provisions are dead. Even if all the regulations were removed retrospectively, it is unlikely that any company would consider offering DB provisions going forward.
- It is unlikely that DC pensions will be sufficient for most members. However, any future alternative will probably be DC plus something instead of DB less something.