We do not often hear about defined benefit pension schemes, but in light of what happened with retirement funds at the retailer BHS and Tata Steel, they have been in the spotlight quite a lot recently.
Concern about the future of these schemes has been rife, so I want to reiterate that while it is clear that a minority of employers are struggling, the government has confidence in the sector as a whole. When many of these schemes were first set up, Britain was a very different place. Defined benefit pension schemes were made for a world where people did not live as long they do now, where they had one job for life and most people stuck with a big organisation.
Yet today there are still around 11m members of such schemes. Crucially, these schemes hold around £1.5tn under management, which is equivalent to about three-quarters of the UK’s annual gross domestic product.
Through investment in UK government bonds, corporate bonds and equities these schemes help to fuel our economy. And even if you do not have savings invested in one of these schemes, their future and security is important for everyone with savings and investments.
There is no denying that these schemes are on the wane — not least because of how the world is changing. On average, we will move jobs at least 11 times over the course of our working lives, and we can expect to enjoy much longer in retirement. Many people will also choose to stay in employment for longer, enjoying the benefits of a higher income in later life and paying into a pension for longer.
During the summer of 2016, defined benefit pension deficits reached, on one measure, a peak of £459bn, but have since dropped substantially to £196.5bn, highlighting the volatility in deficit estimates. So it is clear that we need to ensure the future of the sector on which so many people depend, and reassure those whose secure retirement depends on a defined benefit scheme.
Today the government will launch a green paper calling on the pensions industry, employers and consumers to share their views and ideas on the future of the defined benefit sector. We are not looking to make change for change’s sake. Instead, we want to make sure that people have confidence that their pensions are adequately protected and that the right support is in place for schemes to deliver their promise to those who have paid in, often for all of their working lives.
The green paper will consider the powers of the Pensions Regulator and encourage a debate about striking the right balance between the needs and aspirations of sponsoring employers, members, the Pension Protection Fund and the wider economy to ensure that no one group is unfairly disadvantaged.
The government remains committed to building the savings culture in the UK. I am delighted that over 7m people have been automatically enrolled into a pension scheme, and that pension freedoms ensure that people have flexibility and choice in how they spend their retirement income. The UK also has a proud history of consumer protection, and this green paper will be another step in making sure that we are delivering a pension system that works for everyone.
The writer is secretary of state for work and pensions
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