Back to the Future: A Long Term Solution to the Occupational Pensions Crisis

Abstract: In the UK and elsewhere, defined benefit (DB) schemes are being replaced by defined contribution (DC) schemes. However DC schemes have some substantial weaknesses, and a continuation of current policies will probably lead to another pensions crisis in a few decades. There is an alternative which avoids the major defects of both DB and DC schemes. It is proposed that, if UK employers wish to replace their DB schemes, they should do so with something that looks like a career average revalued earnings (CARE) scheme to the members, but is funded by single premium deferred annuities (SPDAs). The members get what is effectively a DB pension scheme. However pension provision is outsourced to specialist providers (insurance companies), with all the risk (and the decisions that must be made by members of a DC scheme) borne by insurance companies, not by the employer or members.