From the blog: Ten years on from the financial crisis, we are only now seeing the full implications for pensions. It seems a bleak picture. With gilt yields remaining at historic lows, many schemes have seen deficits and contribution requirements balloon.
High profile failures have been a key theme of recent times and have led to even more questions about the state of pensions.
Although the financial crisis can be blamed for some of the issues we face, are pension scheme members actually suffering because of these changes?
High profile failures have been a key theme of recent times and have led to even more questions about the state of pensions. Although the financial crisis can be blamed for some of the issues we face, are pension scheme members actually suffering because of these changes? Not necessarily.
Out of the ashes of the crash, we have seen huge changes rippling out and these have at least been influenced by the world in which we find ourselves.
To paint the crisis as only producing negative outcomes – or to pin the current problems solely on the crisis – would be a misjudgment. In reality, events 10 years ago have driven positive change as well.
Status quo has been questioned
For example, in recent years we have seen much more debate about how to assess liabilities taking account of each scheme’s unique combination of covenant and investment strategy.
While many schemes continue to find ‘gilts plus’ methods most suited to their circumstances, others are moving to different models that reflect their particular situation. Indeed, we could finally be seeing truly scheme-specific funding approaches.
This is being supported by meaningful discussions about the role of the Pensions Regulator. Its new objective to consider sustainable growth was arguably only introduced in reaction to the financial crisis. Without the turmoil, integrated risk management might never have come to be.
The closure of defined benefit schemes has also arguably brought greater understanding of the value of pension provision of any sort. For the increasing number of defined contribution scheme members, the popular flexibilities for savings were introduced in the wake of rising annuity prices – prices partly caused by the low interest rates triggered by the crisis.
Equally, the switch from retail price index to consumer price index as the measure for increasing pensions, arguably introduced as a way to ease deficits, brought some relief for sponsors of schemes, albeit by reducing the benefits promised.
Challenges remain, and will continue to arise, but perhaps it is time to change the narrative around pensions if we really do want members to value their pensions and engage in saving for retirement.
Sarah Brown is a principal at consultancy Punter Southall
