Industry predictions around defined benefit (DB) legacy issues, especially involving buy-out, being completed within 25-30 years are wildly over optimistic, the Pensions Management Institute (PMI) has said.

In reality, PMI said that the timeframe is much closer to 50 years than what is being predicted and added that the industry does not fully understand this.

PMI also expressed concern that there seems to be more focus on defined contribution (DC) preparations.

Tim Middleton, PMI technical consultant, said: "The very nature of DB liabilities is long-term and we have some concerns that the industry does not fully appreciate how long it will take to reconcile through wind-ups and buy-outs.

"It is becoming increasingly clear that the buy-out market will struggle to provide the capacity to cope with current demand for these exercises, let alone keep up with any growth in the volume of requests."

Middleton said that DB legacy issues are not being accurately addressed because the industry seems to be more and more focused on auto-enrolment and DC preparations.

He said: "There is a perception that DB is dead in the water; we couldn't be further from the truth. The fact of the matter is there are people who have not even been born yet who will spend their careers working on DB."

The impact of DB liabilities on the sponsor should not be underestimated especially since many companies are struggling to make any impact in reducing deficits and scheme deficits often dictate a company's strategy, Middleton said.

"We would urge the industry not to be entirely distracted by new DC ideas just yet, as the reality is that the remnants of DB will continue for decades to come," he said.

First published 25.07.2013

monique_simpson@wilmington.co.uk