The NAPF’s new investment council chairman Ray Martin has announced six changes he believes are needed to save private-sector defined benefit pensions.

  • Reverse the Government’s decision to withdraw higher rate tax relief on pension contributions.
  • Simplify the 2012 reforms to help employers comply, rather than assume they are going to avoid their obligations.
  • Change the objectives of the Pensions Regulator so that it has a duty to encourage the creation of an environment in which pension provision can flourish, not just existing to protect the Pension Protection Fund.
  • Ensure that accounting standards are fit for purpose and give transparency to investors while recognising the long term nature of liabilities.
  • Issue more long-dated and index-linked gilts to enable pension funds to better match their liabilities.
  • Put simplicity at the heart of pensions policy, both in the State and workplace provision

However, none of these proposals address the fact that defined benefit pensions are just too expensive. Long-term interest rates have fallen so much, longevity has increased so much, and so many guarantees have accrued to pensions since the late 1990s that they are simply unaffordable in their current form. The guarantees have also forced trustees towards lower-returning, guaranteed assets such as bonds to reflect the fact that all discretion to vary benefits has essentially gone.

What is needed is something more fundamental. What is needed is a new class of defined benefit pension with no guaranteed increases, based on a career average rather than final salary calculation. Some flexibility over retirement rates wouldn’t go amiss either. Anything less is just the rearranging of deckchairs on the titanic volume of pension liabilities.