Why DB pensions matter

If you only had newspaper headlines to go on, you might be forgiven for thinking that private sector defined benefit (DB) pension schemes are about to reach the end of the road.

However, while there has been a lot of change in the DB market over the last ten years, and a number of high profile and challenging cases recently, DB pensions still matter and our latest DB landscape report tells us why.

According to the report, The Pensions Regulator’s (TPR) data shows a consistent decline in membership of DB pensions over the last ten years. Active memberships are down year-on-year and schemes are still closing, albeit at a very slow rate. In 2010, there were 2.4 million active members in private sector DB schemes, compared with 1.3 million in 2017. 14% of DB schemes remain open to new members compared with 35% in 2010.

But with active, deferred and pensioner memberships, 11 million people are relying on DB pensions for what is probably a significant proportion of their retirement income.

So, we can see that DB schemes remain incredibly relevant and not just for those 11 million members who are or will be receiving benefits from them, but for the wider UK economy. Our DB landscape report shows that according to our scheme-specific measure of DB assets and liabilities, (also known as Part 3 Funding),  DB schemes hold over £1.5 trillion assets under management.

The report also shows that in 2017, DB schemes collectively had liabilities of £1.8 trillion, leaving a deficit of around £275 billion. This means that overall, DB schemes are underfunded.

This is hardly surprising though, as the DB regulatory framework was not designed to require employers to fully fund their DB pension scheme at all times. Could some employers afford to pay a bit more than they currently do? Certainly. Are there changes that could be made to the DB regulatory framework to ensure that they do? Absolutely.

This is why TPR has embarked on a programme of work to improve the way we operate as a regulator, to be clearer in our expectations of schemes and their sponsoring employers, and to intervene more quickly and more frequently where schemes aren’t meeting our expectations.

And it’s why the Department for Work and Pensions is about to publish a White Paper setting out how it intends to strengthen our existing DB regulatory framework. So while there may well be headlines bemoaning the state of DB pensions, the reality is quite different, and we are committed to ensuring member benefits are protected and that sponsoring employers meet their duties. Because DB pensions still matter.

Catherine Cunningham
By Catherine Cunningham
Policy Manager