I had the honour of running a workshop alongside Andy Seed last week at Owen James’ excellent Retirement Matters conference. We discussed the Pensions Commission and what it needs to consider, and one point really stood out: we seem to have lost sight of the philosophy that underpinned the construction of our welfare system. Beveridge’s vision of support “from cradle to grave” provided a shared understanding of purpose. Without such a consensus today, politicians can dismantle or reshape parts of the system without significant resistance.
This disconnect is evident across both state and private pensions. A striking example, highlighted in a recent Professional Pensions article, is the plight of around 750,000 pensioners with pre-1997 defined benefit (DB) service. Because there is no statutory right to inflation protection for accruals before 1997, their incomes have been steadily eroded over the last three decades. Some members whose pensions are largely based on pre-1997 service are now receiving benefits worth less than half their original purchasing power. Incidentally, I understand the Work and Pensions Select Committee is planning to explore these issues in more detail in October.
While trustees must follow scheme rules, there is mounting pressure for them to consider whether strong funding positions and surpluses could instead be used to restore fairness, rather than returning money to sponsors or insurers. Reformers argue that limited statutory inflation protection would be a fair and manageable fix, and with a Pension Schemes Bill under discussion, momentum for change is building.
The article includes this striking quote:
“While some trustees will take the view that they have done what the law requires, that stance might be at odds with fairness and the spirit of the pension promise that recognised loyal service and was at the heart of the desire by sponsors to create DB schemes. And some trustees may have considered discretionary increases affordable for their scheme but had their proposals frustrated if the sponsor, with the power, did not consent.”
This tension – between legal compliance, fairness, and employer pressure – raises a deeper question: have we drifted too far from the conviction and philosophy that drove the creation of these schemes in the first place? The erosion of member voice on trustee boards and the weight of employer influence have certainly played a role.
It’s a thorny issue, because it isn’t just a financial trade-off. At its heart, it’s about whether we want to preserve a sense of shared commitment to security in old age. If the new Pensions Commission is serious about building a system that is both adequate and sustainable, then it must not only tackle technical reforms, but also re-engage with the values and philosophy that underpin them.
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