Defined benefit (DB) should be considered part of the future, not just the past of pensions, according to panellists at the Pensions and Lifetime Savings Association’s Annual Conference.
Carol Young, group chief executive at the Universities Superannuation Scheme, said DB needed to be a part of the future of the industry.
As many schemes have found themselves in a better funding position than they have been in for many years, she said it was important that the focus remained on how to get the best member outcomes.
“How do you take the things that are really good about DB and preserve it for the future?” said Young.
One scheme with a strong funding position is the West Yorkshire Pension Fund. It was 108% funded at its 2022 valuation, and managing director Euan Miller was looking ahead to facing some interesting decisions at the next valuation in March 2025.
These included “whether we continue to keep investing in growth assets, or if [employer] contribution rates continue to come down,” said Miller.
The possibility of the scheme becoming self-financing was not impossible, Miller added. West Yorkshire could take some risk off the table, he said, potentially derisking the investment portfolio to lock into a 15% or 20% contribution rate for employers, which “would still be a very good outcome for quite a generous DB scheme”.
In the private sector, Simon True, chief executive officer of Clara Pensions, said consolidation was likely to continue at pace alongside high bulk annuity volumes. True said there was an “industrial logic” for consolidation among the fragmented group of 5,000 private sector DB schemes.
He highlighted the potential to drive down costs, improve governance, and to offer access to better investment expertise and new asset classes.
“All of these things should drive better member outcomes,” said True, “and depending on the form of consolidation, it can attract new capital, which makes members’ benefits more secure as well.
“Consolidation is not inevitable, but ought to happen.”
