Has regulation killed off the defined benefit scheme as a cost effective tool for human resource management?

Abstract

PurposeThe purpose of this paper is to investigate the effect of regulation on both the cost of defined benefit pension (DB) schemes and their effectiveness for human resource management.Design/methodology/approachThe paper initially outlines the factors that have affected the costs of DB schemes. It then reviews relevant theory from the human resources area and details how ongoing regulation has impinged on the use of DB schemes in this area.FindingsMany years of heavy regulation have not only increased the costs of DB schemes but reduced their utility in the field of human resource management. In consequence, the business case for these schemes has been very much weakened.Practical implicationsThe undue regulation of scheme design needs to be reduced to allow organizations to evolve pension forms that provide an attractive balance between their cost and their appreciation by employees and hence their utility in the field of human resources management.Originality/valueThe paper proposes a framework for analyzing the business case for DB'schemes. This framework is very convenient for examining the overall effect of changes in regulation.

The UK pensions landscape – A critique of the role of accountants and accounting technologies in the treatment of social and societal risks

“…In a DB scheme, majority of the risks are borne by the employer whilst a DC scheme places the majority of the risks on the individual scheme member (Paisey and Paisey, 2006;DWP, 2008). The de-risking strategies adopted by sponsoring employers shows that they have realised some of the inherent risks with DB schemes and have taken steps to shift those risks to individual pension scheme members in the form of DC plans (DWP, 2008;Watson, 2008;Hudson, 2008) or by retaining but adjusting DB schemes to share or reduce risk.…”

Some thoughts on the decline of pension schemes

“…Most academic writings on pension provision do recognise that new pension accounting standards have played a part in the closure of DB schemes Hudson, 2008). There is, on the other hand, a large body of literature surrounding other causes for the decline in DB schemes, each of varying importance.…”

“…Overall, the amount of regulation over the years has been extensive (Hudson, 2008), where some has involved compulsory benefit increases, or increasing the tax on investment returns as discussed below.…”

Pension Confusion, Uncertainty and Trust in Scotland: An Empirical Analysis

“…Importantly, developments in the UK highlight several broader trends. The first concerns the challenges facing employer/employee relationships when employers no longer regard DB pension provision as a useful human relations (HR) tool (Hudson, 2008). The financial costs to businesses of the DB ‘promise’, particularly in the light of the financial crisis, have become all too apparent (Bridgen and Meyer, 2005; Hudson, 2008; Munnell et al ., 2008).…”

“…The first concerns the challenges facing employer/employee relationships when employers no longer regard DB pension provision as a useful human relations (HR) tool (Hudson, 2008). The financial costs to businesses of the DB ‘promise’, particularly in the light of the financial crisis, have become all too apparent (Bridgen and Meyer, 2005; Hudson, 2008; Munnell et al ., 2008). DC provision has enabled a reduction in employer financial contributions and erosion of employer paternalism, though not without causing some strain in the employment relationship (see Byrne et al ., 2007; Employer Task Force on Pensions, 2004).…”