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

Charles Sutcliffe

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 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) DB scheme to the members, but is funded by single
premium deferred annuities (SPDAs) and looks like a DC scheme to the employer.
Pension provision is outsourced to specialist providers (insurance companies),
with the risk (and the decisions that must be made by members of a DC scheme)
managed by insurers, not the employer or members.

Key words:- Deferred annuity, defined benefit, defined contribution, single premium deferred
annuity, occupational pension scheme, derisking, two-pension fund separation, crisis.