"A return to deferred annuities"
1. Occupational defined benefit pension schemes were introduced as a perceived lower cost option for employers compared with buying pensions for employees from the insurance market.
2. With the advent of increased risk related to low investment returns and increasing longevity, the insurance market has started to offer to take liabilities back from the occupational defined benefit pensions sector. In addition, employers have begun to move to offering pensions on a defined contribution basis avoid the above risks.
3. Going forward, the solution I suggest is as follows:
For each complete year that an employee is in service, at the end of that year, the employer should purchase for that employee, in his/her name, a deferred annuity with an initial annual value of 1/100th of that year's salary.
4. The advantages of this approach would be:
Employees would receive a defined benefit
Employers would pay a known cost and would not be subject to future investment and longevity risk
A competitive insurance market would develop
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