Pension funding of old Defined Benefit (DB) schemes takes up too much cash for many of today’s businesses and the UK economy. Yet regulatory work and the inspired decision to set up the Pension Protection Fund means we can stop over-solving pension problems. The Prime Minister’s and the Chancellor’s recent call to investment managers to put more money to work in the UK in infrastructure and technology is right. What is needed is to take time. Run the scheme on and cashflow projections will show most major schemes are OK or better than that. Plan for success while addressing the risk of failure – through risk diversification.
I have had a career in the City and then in traditional businesses with large pension schemes like Aga Rangemaster. Now having spent some years working in the arcane world of pensions, my recommendations for corporates and scheme trustees are:
Many companies are running the risk of packing schemes off to nursing homes far too soon. Meanwhile it is a terrible waste not to see if the available resources can help the next generation of employees.
Reactivation beats decommissioning - running on beats buyout. It is an approach which can benefit all stakeholders. Pensions is a subject on which most people go reluctantly to school. A little swatting up, however, can bring remarkably good results.
Invest the time and money so all harvest the benefits of the DB magic money tree.
Read William McGraph's previous articles on Defined Benefit pension schemes: Has filling black holes created a magic money tree? and Time to take your time with Defined Benefit Pension Schemes