This book is a comprehensive assessment of the current challenges facing defined benefit occupational pensions. In large part, it is designed to inform pension fund trustees, plan sponsors, and stakeholders. As well, the editor and contributors would hope to inform pension plan participants and those that make policy relevant to the provision of occupational pensions in both the public and private sectors. The book is conceived in parts and chapters within parts, providing a thematic and additive understanding of the nature and scope of defined benefit pensions, options for change, and many other topics. So, for example, it has parts devoted to the relationship between pension plans, regulators, and financial markets. Being a comprehensive treatment of these topics, it is a welcome addition to the literature.
The book is based upon nine parts and 24 chapters. Part 1, comprised of two chapters, sets the scene: the problems facing defined benefit pensions, and the methods used to assess and cope with plan deficits. As such, the reader is immediately aware that this is a book for plan administrators and trustees in the UK, and the Anglo-American pension world. There are, however, chapters devoted to other jurisdictions including Germany. Nonetheless, this particular book has a clear focus on the UK and in particular (in Part 5) the various public institutions and regulators that affect the management of defined pensions.
In Part 2 of the book, contributors provide comment and insight on the various options facing plan sponsors when they seek to reduce long-term exposure to the liabilities associated with defined benefit pensions. So, for example, there are chapters on changing scheme benefits, career averaging, transfers, and defined contribution schemes. In Part 3, there is a single chapter devoted to investment. In Part 4, a set of three chapters are devoted to the responsibilities of employers and trustees, and the management of occupational pensions in relation to wider considerations such as discrimination. As noted above, Part 5 (three chapters) is devoted to UK pension regulation. Parts 6 and 7 deal briefly with the development of the buyout market and scheme governance. Part 8 provides surveys of deficit reduction programmes in Canada, Germany, Ireland, and the United States. The book concludes with a single chapter in Part 9 devoted to future prospects.
Evaluating the book, we can identify three virtues that make it a useful and informative compendium of current issues. First, the topics considered are important and are dealt with succinctly in ways relevant to the professional pension fund manager and trustee. Second, as a topical guide book to managing defined benefit pensions, the reader can use it as a sourcebook for current regulatory requirements. Third, on a number of topics with which this reader was familiar, the material proved to be informed and of relevance to those responsible for UK pension schemes.
However, this reader was acutely aware of the shortcomings of this book and, in particular, the approach taken by the editor and contributors. Most importantly, being a statement about the current problems facing defined benefit pensions in the UK and in a number of other developed economies, an opportunity was missed to provide an in-depth appreciation of the scope of the problems facing defined benefit pensions. Being implicitly based upon the relatively poor performance of the average fund over the past decade, the book fails to acknowledge exemplars of excellent performance over the same period of time. Equally troubling was the practice of many contributors to simply list the relevant issues by topic, leaving open their relative importance or unimportance. In many respects, those knowledgeable about occupational pensions are aware of the issues; the crucial issues require expert judgement and decision-making. I am not convinced that this particular volume will help in that regard. Many chapters were backward-looking rather than forward-looking, the difference being found in their statements of accepted practice rather than best practice. Unfortunately, it seems that anxiety over legal responsibility has encouraged contributors to provide conventional treatments of each and every topic where, in fact, the crisis of defined contribution pension schemes requires a radical re-conception of both the theory and practice of such institutions.
One final observation: take the issue of asset allocation. Reading this book, one would be led to believe that it is an issue of balance; that is, balancing the distribution of assets between equities and bonds with respect to their past performance and current regulatory requirements for meeting long-term liabilities. In one sense, this is probably right. However, it is hardly an adequate conceptualisation of the problems facing defined benefit sponsors and plan trustees. For a start, it is not clear that the past performance of equities and bonds is as relevant to investment strategy as it might have been 10 or 25 years ago. It is arguable, notwithstanding the fascination of many with the historical data, that the equity premium (for example) is not an adequate way of conceptualising the performance of financial markets over the past five years or, for that matter, the best way of conceptualising future financial market performance over the next five to 10 years. Readers may, of course, disagree with me. But this is the telling criticism of the book itself: there is a significant and growing debate about this issue. But you will not find it in this book.
