Suggested Structural Changes Flat rate benefit at retirement until the parameter e.g. 10 years post NRA decreases commence. Consider small lump bounty payments at advanced age or death. Possible lump sum at the end as well as at the beginning.
Inflation Risk If rising debt frightens domestic and foreign lenders into fearing high inflation or default, interest rates could soar. A first stimulus was warranted, but now "it makes no sense to use stimulus just to postpone the reality of lower economic growth over the coming decade."
Funding Standards Triennial valuation. Far too narrow a snapshot and almost akin to the quarterly reports of public companies. Invites trouble as the case for equities becomes more compelling as liabilities and under funding rise.
Retirement Age 65 Much better off lower benefits at 65 than a higher one at 70. Most people have their commitments made shortfalls to be supplemented by private saving. In the main replacing pensioners at 65 with unemployed at 65.
“Britain's growth will continue into its 59th quarter and then into its 60th and 61st quarter and beyond... Inflation has fallen from 3% to 2.8%, and will fall further this year to 2%... Looking ahead to 2008 and 2009, inflation will also be on target. And we will never return to the old boom and bust." Government Britain's Chancellor of the Exchequer, Gordon Brown, Budget statement 2007
Micro Overregulation Regulation has clearly contributed to the decline of DB and DC will surely be next. In contrast, in the UK, one sixth of all pension income was the BP dividend – a truly horrendous over exposure. The impending UK tax changes from April 2011 potentially provide a further incentive to consider lowering the defined benefit promise.
Public Service Pensions Public service pensions arguably destabilising private sector ones. Sensible sustainable public provision could greatly assist in strengthening private DB provision.
Sweden Sweden had a bruising financial crisis twenty years ago. They used the crisis as an opportunity to reform their systems including the pension system. They acted quickly and decisively. Sweden decided to jettison DB partially on the basis that the blue collar worker was subsidising the university educated professional. Such anomalies do exist in DB.
Prolonged economic growth tends to make people assume that future generations too will grow richer, and hence to make less provision for them. Yet the Victorians built railways and city halls for their descendants in what was one of Britain’s most optimistic eras. In Britain, as elsewhere, alas, it is painfully hard to see beyond the next election. Conclusion