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DB Crisis – What Crisis?

Basement bottom bond yields and the unremitting negative publicity garnered by BHS, Tata Steel and others has people talking of a crisis and many are wondering whether root and branch reform is required. These recent travails also pushed the Government into action who dipped their feet into the water with their recently published Green paper on “DB sustainability and Security”. However, is it really that bad? Are pension deficits spiralling out of control into oblivion? Are an increasing number of Companies going to follow their schemes down a black hole?

Or are we all guilty of hyperbole? This week, Alan Rubenstein, the Pension Protection Fund’s (PPF) Chief Executive made some very interesting comments about the industry as a whole:

“We don’t see a fundamental affordability issue with the DB system”.

“Our modelling suggests over time scheme funding should improve. I am not pretending there is not an issue with a minority of stressed schemes. There clearly is, and we should not underestimate what that means for members and corporates, but we have to make sure we don’t lose sight of the bigger picture.

“As we consider the changes that we want to make, it’s important to recognise that bits of the system are working well. We need to bear that in mind when we think about what we also want to change.”

Our View: We would echo Mr Rubenstein’s comments – although there are clearly elements within funding and investment that are in need of urgent reform, all is not lost. Overly ambitious and complicated solutions such as small scheme consolidation aren’t the answer – we must not throw the baby out with the bath water.