Defined Benefit (DB) schemes were designed by men for men - not necessarily intentionally – but they have since their inception in the 9160s - that was the conclusion of the industry and is backed up by participants at a recent panel discussion. The debate explored “Gender and Governance: Addressing the Judicial Review of the decision to replace Retail Price Index (RPI) with Consumer Prices Index with Housing (CPIH) and the Gender Insurance Gap”, which featured in Clear Path Analysis’s Investing in Fixed Income Europe 2022 report that also featured insights from AXA Group, XPS Group, Janus Henderson, and Pictet Asset Management.
The debate focused on proposed changes to how DB contributions were calculated that could make things more equitable, but also more expensive.
The participants spoke about how this could be a complicated matter for insurance investors over the next few years and how they needed to stay ahead of any controversies or possible financial repercussions, especially as it was likely to increase costs.
“DB schemes were designed by men for men, so they weren’t
designed to necessarily even out the pensions gap.”
Dr Matthew Connell, Policy and Public Affairs Director, Chartered Insurance Institute and Daniela Silcock, Head of Policy Research, Pensions Policy Institute, said looking at pensions through a technical and gender lens makes the implications plainer to all parties.
“DB schemes were designed by men for men, so they weren’t designed to necessarily even out the pensions gap,” said Connell, when asked what the critical implications of replacing RPI with CPIH were. “It is important to understand the implications of all these decisions and elements of pensions because so often all of these things happen in a technical world. But in the real world when we look at people’s risks through the lens of gender, as well as other issues like disability, they become far starker,” he said.
This decision, by the UK government, has been controversial with court cases and splits of opinion in the market.
The policy change was brought forward by the UK Statistics Authority’s (UKSA), which announced a decision to align the RPI with the CPIH.
“The UKSA’s decision follows a general acceptance among statisticians that RPI is no longer an accurate measure of inflation,” said Linklaters law firm in its report on the matter. “However, the decision to replace it with CPIH (which is typically up to 1 percentage point lower year on year) is anticipated to cause a 13% loss in the value of gilts held by defined benefit pension schemes.”
“The question is how we measure this, and who is responsible
for collating all of the changes in pensions together?”
Ever since the 1960s DB pensions have been used as a plank for the welfare state, Connell explained. “They have been used as a rationale for not increasing state pensions, so policy makers have to consider that these issues are happening. They may not have been designed to work in a certain way and the changes might not have been designed to meet the pensions welfare gap between men and women,” he said. “Nobody intended for this to get bigger, but it has gotten bigger, so the question is how we measure this, and who is responsible for collating all of the changes in pensions together?”
The gender pension gap is oft discussed but little actioned upon problem. Numerous studies have shown that women have more widely been penalised by a pension system that doesn’t work that well for them.
“There are lots of knock-on effects and intersections
between areas like gender and disability.”
In light of this, the panellists were also asked if the changes were more unfair in the context of the disproportionate effect on women
“As DB have been used for making weights for welfare policy in areas like disability with mental health, historically women have been more likely to claim disability benefits for mental health than men,” he said. “There are lots of knock-on effects and intersections between areas like gender and disability, which in a loose free market system, don’t always get tracked and catalogued properly.”
Its effect on fixed income investment margins will be seen over some time, but it may still split industry opinion.
