Pensions: Private Sector

Department for Work and Pensions written question – answered at on 31 October 2022.

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Photo of Rachael Maskell Rachael Maskell Labour/Co-operative, York Central

To ask the Secretary of State for Work and Pensions, what recent assessment her Department has made of the impact of the present economic situation on private sector pensions schemes; and if she will take steps to ensure that any higher contribution costs introduced in such schemes as a result of the present economic situation are met by increased employer, not employee, contributions.

Photo of Laura Trott Laura Trott The Parliamentary Under-Secretary of State for Work and Pensions

Pension schemes operate over very long timescales and the long term performance of their investments is more important to outcomes than any short term volatility.

Since 2021 rising gilt yields have had a positive impact on the funding of defined benefit pension schemes. Aggregate funding has improved substantially, and a large number of schemes now have a funding surplus. The magnitude and speed of the rise in gilt yields at the end of September caused a significant liquidity squeeze for DB pension schemes that use liability driven investments (LDI) to hedge against low interest rates and their LDI providers, but any economic losses are very likely to be more than offset by improvements to scheme funding positions. As aggregate funding positions are likely to have improved, we do not expect to see any general need for increased contributions from employers or members.

The value of investments can change in defined contribution (DC) schemes, though these vehicles are designed to maximise outcomes over the long term and offer choices at retirement. In schemes used for automatic enrolment there are statutory minimum contribution rates, but employers can offer higher contributions, which members can choose to take up, should they so wish.

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