Proposed DWP regulations on DB scheme funding will accelerate pension liability buy-outs and the demise of DB schemes  

Mercer questions whether the accelerated demand could be met by current market participants

London: 15 August 2022. If implemented as drafted, the Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2023, recently released by the Department of Work and Pensions (DWP), would require almost all DB pension schemes in the UK to divest entirely of return-seeking assets, the majority by 2040. According to Charles Cowling, Chief Actuary at Mercer, it would not be an overstatement to say that these regulations would force ‘an accelerated end-game of UK DB pension schemes over the next 10-15 years.

“The potential impact of these new regulations would be significant and dramatic,” said Mr Cowling. “The draft proposals would force the sale of £500 billion of return-seeking assets, the majority being required before 2040. This could see approximately £200bn of liabilities added to the balance sheets of employers with DB schemes over the next 10-15 years.

“The regulations would significantly accelerate the buy-out of DB pension scheme liabilities, such that we might expect to see the demand for the settlement of up to £200bn of pension scheme liabilities each year for the next 15 years. 

“What isn’t clear yet, is whether this accelerated demand could be met by current market participants.”

Mr Cowling added that while Mercer welcomes moves to a safer, more secure pension environment, it has also warned the present proposals come at a high cost and with implications for both trustees and members. 

“The current proposals focus on DB pensions, rather than defined contribution schemes (DC) that millions of people currently working will rely upon in future,” added Mr Cowling. “While we welcome efforts to encourage a safe and secure environment for member benefits, this should not come at cost of diverting scarce employer resources from the DC schemes that will deliver people’s pensions in the future. 

“If adopted, these draft government regulations will significantly change the pensions landscape and make the operation of DB schemes more challenging, particularly smaller schemes.

“Trustees work in the interest of securing members’ benefits and must be given the flexibility to take steps necessary to deliver on this responsibility in a proportionate and appropriate way.” 

Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 83,000 colleagues and annual revenue of nearly $20 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit mercer.com. Follow Mercer on LinkedIn and Twitter.

Marsh McLennan (NYSE: MMC) is the world’s leading professional services firm in the areas of risk, strategy and people. The Company’s 83,000 colleagues advise clients in 130 countries. With annual revenue of approximately $20 billion, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment through four market-leading businesses. Marsh provides data-driven risk advisory services and insurance solutions to commercial and consumer clients. Guy Carpenter develops advanced risk, reinsurance and capital strategies that help clients grow profitably and pursue emerging opportunities. Mercer delivers advice and technology-driven solutions that help organizations redefine the world of work, reshape retirement and investment outcomes, and unlock health and well being for a changing workforce. Oliver Wyman serves as a critical strategic, economic and brand advisor to private sector and governmental clients. For more information, visit marshmclennan.com, follow us on LinkedIn and Twitter or subscribe to BRINK.