CAP Services: Blending DB and DC Pension Schemes


Jerry Gandhi, a keynote speaker at the marcus evans UK Pensions & Investments Summit 2011, on combining elements of DB and DC pension schemes to satisfy both employers and employees.

Interview with: Jerry Gandhi, Director, CAP Services


Defined Benefit (DB) and Defined Contribution (DC) pension schemes both have their merits as well as their drawbacks, according to Jerry Gandhi, Director, CAP Services. When neither employer nor employee want (or capable) to take responsibility, an outcome that is satisfactory for both parties is impossible. However, a halfway house solution that combines both types of systems is possible, and could deliver long-term support for both sides. A keynote speaker at the marcus evans UK Pensions & Investments Summit 2011, in London, UK, 6 – 7 October, Gandhi discusses the option of blending DB and DC for a better outcome.

Why is the UK pension system in need of reform?

Jerry Gandhi: Both types of pension schemes have their merits and drawbacks. DB schemes give employees security – or perceived security – for the longer term and DC schemes give them more cost certainty. However, neither delivers an optimal, quality solution for both parties.

The current legislative environment is overly complicated and leaves employers exposed and therefore unwilling to underwrite future pension risk. This linked, to the poor level of financial education of the man in the street, means we have a perfect storm of no desire from the employer and inability by the employee to deliver financial wellbeing in retirement. In such an environment an outcome that is satisfactory to both is impossible. This means a need to compromise, share the risks and find a way to fit DB and DC schemes together.

What would help close deficit gaps?

Jerry Gandhi: This is always a challenge. The solutions are idealistic, but I would suggest taking a longer-term view of the fund, understanding the risks, and when possible grabbing opportunities to lock-in returns to reduce volatility and reduce the risk of unexpected deficits in the future.

What de-risking strategies would you suggest?

Jerry Gandhi: De-risking strategies come in many guises, from very basic investing better to targeting outperformance and or injecting more capital and then ultimately to buying out using annuities to cover liabilities. Most DB scheme directors would prefer the complete security of the annuity purchase, but that is only a solution if they proactively work with investment markets and the sponsor to ensure funding is able to match the liability.

What long-term asset allocation strategies could you offer?

Jerry Gandhi: Long-term asset allocation strategies depend on the liability profile of the pension fund and the quality of the employer covenant. There is no magic bullet for delivering optimum investment strategies. It is absolutely essential to ensure assets are aligned to future liability needs.

Do you have a final message?

Jerry Gandhi: Look more holistically at options and be longer-term in your vision/planning. Fight to ensure quality pension provisioning can be maintained DB, DC or both, which include options for risk-sharing. Educate employees to participate in the process, to make sure the outcome is what they need and that they own some of the responsibility.

Pension industry professionals should contribute to the UK pensions’ debate, and seek simplification, deregulation and education/engagement. I believe there are solutions that can help deliver the objective of achieving quality retirement provisioning for all.

Sarin Kouyoumdjian-Gurunlian
Press Manager
marcus evans, Summits Division
Tel: + 357 22 849 313

About the UK Pensions & Investments Summit 2011

This unique forum will take place at the Wyndham Grand London Chelsea Harbour Hotel, London, UK, 6 – 7 October 2011. Offering much more than any conference, exhibition or trade show, this exclusive meeting will bring together esteemed industry thought leaders and solution providers to a highly focused and interactive networking event. The Summit includes presentations on minimising the pensions’ deficit, adopting optimal asset allocation strategies, and exploring new investment horizons.

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