MPs on the work and pensions committee are to launch a probe into the long-term viability of the UK’s 6,000 defined benefit (DB) schemes.
The committee is already investigating the current state of pension regulation as well as the collapse of BHS and its pension scheme’s fall to the Pension Protection Fund.
The government is also investigating whether to reduce the pension entitlement of 130,000 British Steel workers.
MP and committee chairman Frank Field (pictured) said it is, therefore, necessary to have a fresh inquiry which considers the status of DB pensions in their entirety. The probe will consider radical solutions to the problems faced by companies with significant DB liabilities.
“The select committees’ in-depth case study on BHS is illustrating how such schemes are already creaking from rising life expectancy and record low returns on capital.
“Pension law and regulation must urgently adapt to the issues of the future, rather than the problems of the past. The whole savings edifice is in danger,” he said.
More than 5,000 schemes are in deficit totalling £805bn while the combined surplus of other schemes is just £4bn.
Field added: “This will be a major inquiry considering radical solutions to one of the great problems of this age. The inquiry will consider, among other things, radical solutions that could be more easily implemented if real returns on capital rise again.”
The whole savings edifice is in danger
Hargreaves Lansdown head of retirement policy Tom McPhail said: “This wider inquiry was almost inevitable, once the committee had started delving into the governance and funding of the BHS scheme.
“The concurrent issues at British Steel have forced policymakers’ hands. It is no longer possible to turn a blind eye to the yawning reality gap that has opened up between the past promises made by employers through their pension schemes, and the funds available today to make good on those promises.”
He added: “This issue affects just about everybody, either directly or indirectly; not just as scheme members, employers, trustees and shareholders, it is also relevant to younger employees in defined contribution pensions.
“A huge proportion of employers’ pension spending is currently being diverted into these final salary schemes, at the expense of younger workers who typically receive lower pension funding as a consequence.
“We welcome this inquiry and see it as an opportunity to explore whether aspects of the scheme governance and the Pensions Act 2004 should be revisited.”
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