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

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.