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DB Green Paper: Good arguments for more flexibility

Faith Dickson

There are good arguments for introducing more flexibility into the current DB system to enable employers and trustees to reach better outcomes for members than PPF compensation where, on the balance of probabilities, the employer will be insolvent if pension liabilities cannot be restructured. Faith Dickson, Partner at Sackers.

However robust the PPF’s funding position is, it is not appropriate legally, nor, given the potential intergenerational impact, from a policy perspective, for schemes to be encouraged to continue in their current form if in reality they are not going to be able to meet their current benefit commitments in full, and on the balance of probabilities end up in PPF assessment. While more members may become pensioners and so receive closer to their full benefits in the PPF, deferred members may well end up having their benefits cut back further in the PPF.

This could be avoidable if their current schemes are able to restructure benefits for all members.  Trustees, with their legal duty to consider the interests of members as a whole, are well placed to assess ways of restructuring pension benefits to enable outcomes that are better than PPF compensation for a scheme’s membership overall.”