The United Kingdom has undergone myriad changes with its federal pension plan, and is now looking at the University of New Brunswick’s shared risk model to potentially develop new regulations in the future, the head of product strategy and liaison from the Universities Superannuation Scheme told a Conference Board of Canada conference in April.Mel Duffield outlined the numerous changes the UK government has made to its pension plans over the last 15 years, some of them gradual and some of them sudden – but nevertheless constant.
The Department for Work and Pensions, the UK government agency responsible for pensions, “cottoned on to the New Brunswick shared risk model quite late in the day…and found it quite attractive,” Duffield said. Of particular interest, she noted, was the New Brunswick model’s clarity and transparency around contracts, property rights and risk management. While other provincial models were considered, including Quebec’s and industries regulated by the federal government, both the New Brunswick and national approach had similarities to those already considered by the UK with regard to consensus building.
The New Brunswick government introduced the shared risk plan in 2012 and considers it a target benefit pension plan. The plan does not guarantee benefits, but focuses on detailed oversight, transparency and risk management to minimize risk for pension plan members. Annual actuarial reviews are carried out to catch any emerging issues.
Duffield noted that the UK is likely to face some of the same kinds of challenges New Brunswick had in dealing with valuation, accounting and tax treatment.
Unlike New Brunswick, the UK has automatic enrollment in its pension, and to date about 10% of those in the UK plan have opted out.
“I think though that the 10% that have opted out are probably the right 10% – they may have debt problems, affordability or credit card debt and they are probably making a rational decision for themselves,” Duffield said in an interview.
She said the UK is looking at the New Brunswick approach to help develop regulations around funding requirements. “We are looking at the New Brunswick model in particular to think about the development of regulations for these schemes should employees decide they want to run them.”
Duffield said it took about 10 years to get one of its earlier plans implemented, and previous risk sharing attempts failed because of a number of concerns, including low employee demand.
Still she said she believes the UK is on the right path.
“I think we have an issue around adequacy – are people saving enough? So I think the big debate for the next Parliament will be whether the contribution for automatic enrollment is enough or do some people, particularly high end earners, need to be putting in more money.”
But there was some disagreement as to whether New Brunswick’s plan is truly shared risk, or a myth, said Clare Pitcher, a senior consulting actuary at PBI Actuarial Consulting Ltd.
“I would argue it’s not shared risk – at least it’s not shared between employer and employee – it’s shared between the members,” Pitcher told the conference. “The members bear 100% of the risk.”
Pitcher said in jointly sponsored pension plans the risk is truly shared between employees and employers. But the New Brunswick model falls more into the target benefit definition rather than shared risk.
“Don’t believe it – the shared risk model in New Brunswick is not shared risk. Really what it is is ‘shifted risk’ – the risk has shifted from employers to employees.” Pitcher said neither the base nor the ancillary benefits are guaranteed in the New Brunswick model. As well, issues approved in the past are not necessarily guaranteed going forward.
He said people can try to ignore and avoid risk, but in truth, all that can be done is to manage risk. However, Pitcher said risk can also be viewed as an opportunity, not a threat and that in a pension plan, members should have some say in how risk is managed.