Comments on: Countering slash and burn on pensions http://touchstoneblog.org.uk/2009/06/countering-slash-and-burn-strategies-on-pensions/ Policy news and comment from the Trades Union Congress (TUC) Thu, 24 May 2012 10:00:06 +0000 hourly 1 By: Nigel Stanley http://touchstoneblog.org.uk/2009/06/countering-slash-and-burn-strategies-on-pensions/comment-page-1/#comment-2693 Nigel Stanley Wed, 01 Jul 2009 12:44:44 +0000 http://www.touchstoneblog.org.uk/?p=3115#comment-2693 The advantage of a DB scheme over a DC scheme is that with the former the employer bears the investment risk, who can of course spread this over time. With a DC scheme the individual bears all the investment risk - and when s/he retires also faces the vagaries of annuity rates. So you are right to say that the big cuts in employer contributions that (almost always) go along with the switch from DB to DC do the most actual damage to the size of the average pension in payment. But that word average is important, as DC schemes produce much more variable pay-outs. For sure, some may gain from that variability, but modest savers in DC schemes can't afford risk and don't want uncertainty. The advantage of a DB scheme over a DC scheme is that with the former the employer bears the investment risk, who can of course spread this over time.

With a DC scheme the individual bears all the investment risk – and when s/he retires also faces the vagaries of annuity rates.

So you are right to say that the big cuts in employer contributions that (almost always) go along with the switch from DB to DC do the most actual damage to the size of the average pension in payment.

But that word average is important, as DC schemes produce much more variable pay-outs. For sure, some may gain from that variability, but modest savers in DC schemes can’t afford risk and don’t want uncertainty.

]]> By: chris http://touchstoneblog.org.uk/2009/06/countering-slash-and-burn-strategies-on-pensions/comment-page-1/#comment-2688 chris Tue, 30 Jun 2009 14:18:21 +0000 http://www.touchstoneblog.org.uk/?p=3115#comment-2688 To what extent is the problem the closure of defined benefits schemes? Isn't the bigger problem the fact that employers often cut contributions when they shift from DB to DC schemes, which is a wage cut by any other name? Put another way, why - for given contribution levels - should we prefer a DB to a DC scheme? Aren't the arguments either way small compared to the difference between contributions of 10% of one's salary versus 5%? To what extent is the problem the closure of defined benefits schemes? Isn’t the bigger problem the fact that employers often cut contributions when they shift from DB to DC schemes, which is a wage cut by any other name?
Put another way, why – for given contribution levels – should we prefer a DB to a DC scheme? Aren’t the arguments either way small compared to the difference between contributions of 10% of one’s salary versus 5%?

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