UK employers want to play a game of heads I win, tails you lose, with the members of their pension schemes. They are keen, too, to draw a veil over how much they owe the schemes: perhaps they think it is not good for their share prices to be open and transparent about this.
The FT reports today on a plan put forward by the CBI, the UK employers’ body, for sweeping changes to pensions regulations. Among other things, it wants longer to make good a deficit than the 10 years currently allowed, and to move away from marking liabilities to market, which the CBI says can misrepresent a scheme’s position.
Defined benefit pension schemes have become a burden for employers – as we are constantly reminded. Regulation has made them increasingly expensive, as have unexpected societal changes, particularly the longer life spans people are enjoying. The response has been to close schemes to new members, and sometimes to existing members too.
It probably feels to employers as if they are the losers whichever way the coin lands, rather than their members. But they have had opportunities to lower the risk the schemes are running. They could have reduced the equity bet when times were good and moved money into assets that matched their liabilities better.
Instead they were seduced by ideas that they could earn the same returns as equities were expected to provide, but with less volatility, by putting money into hedge funds, private equity, and other expensive alternative investments. When things went wrong, of course, the whole lot went down the pan.
Complaining now about the mess they are in seems a bit pathetic.
The CBI does have one useful suggestion. It calls for the government to seed a market for products that help schemes manage their liabilities, such as longevity bonds. Now wouldn’t that be a win/win for employers and members?