Pensions have seen enormous change in the past three decades, but increasing longevity means it is time to rethink things once more, says the Pensions Management Institute's Tim Middleton.
This change has applied to all aspects of workplace pension provision, from the underlying motives of employers in providing schemes through to the design of pension arrangements and ultimately to the form of benefits provided.
One way of analysing this change is to note the impact on industry professionals. When the PMI was founded 40 years ago, its core membership was expected to be pensions managers and administrators. This was an era when a workplace pension was commonly the only employee benefit other than salary that an employer would offer. The scheme would usually be a defined benefit arrangement, the design of which would be aligned with the objectives of a paternalistic employer seeking to reward employees for 40 years of loyal service.
Perhaps our retirement savings culture moves in cycles, and society will in time come to recognise the importance of guaranteed lifetime incomes
Forty years on, the picture is very different. Outside the public sector, DB provision is a rarity, and residual DB liabilities are essentially a problem to be managed. The workplace scheme will almost always be a defined contribution arrangement tailored to meet the requirements of a workforce that changes jobs every few years, and an employer that no longer wishes to retain employees throughout their working lives.
The scheme is increasingly likely to be either contract-based or a mastertrust; whatever form its constitution takes, its administration (as well as that of any legacy DB scheme) will almost inevitably be outsourced.
In-house pensions management has become an increasing rarity. New entrants to the actuarial profession are increasingly unlikely to pursue careers serving DB schemes. The new regime is a more holistic concept of retirement saving. Employers are likely to offer a broad range of workplace financial services, often through a platform such as a corporate wrap; and while there is a statutory requirement for a pension scheme to form part of the overall package, there is no corresponding requirement for employees to be members.
Addressing longevity
Perhaps the most significant development affecting the future of pension provision stems from the changing ways in which pension savings are accessed and used.
Longevity statistics show us that the population continues to survive longer than expected. In an era when we most need to protect retirees from the uncertainties of longevity risk, we are actually increasing that exposure through reducing the role of the traditional pension.
Perhaps our retirement savings culture moves in cycles, and society will in time come to recognise the importance of guaranteed lifetime incomes. It would, however, be a great shame if it takes a period of decades to recognise a problem, and further decades to address it.
Tim Middleton is a technical consultant at the Pensions Management Institute
