Has regulation killed off the defined benefit scheme as a cost effective tool for human resource management?
| Published date | 25 July 2008 |
| Pages | 220-229 |
| DOI | https://doi.org/10.1108/13581980810888831 |
| Date | 25 July 2008 |
| Author | Robert Hudson |
| Subject Matter | Accounting & finance |
Has regulation killed off the
defined benefit scheme as a cost
effective tool for human resource
management?
Robert Hudson
Leeds University Business School, University of Leeds, Leeds, UK
Abstract
Purpose – The 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/approach – The 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.
Findings – Many 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 implications – The 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/value – The 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.
Keywords Pensions,Benefits management,Regulation,Human resource management,United Kingdom
Paper type Research paper
1. Introduction
In the UK, defined benefit (DB) schemes have been in drastic decline for a number of
years (Byrne et al, 2008). Many explanations have been proposed for this decline
including adverse t ax changes, poor inve stment returns, the mo ve towards
mark-to-market accounting, the impact of unanticipated improvements in longevity
and the cost burden of complying with the onerous tide of regulation relating to
pensions.
Whilst there is undoubtedly much truth in these proposed explanations they only
deal with half of the picture. From a rational economic point of view, a company will
run a DB scheme if the benefits it receives from doing so outweigh the costs.
The arguments above only deal with the cost side of the equation. The benefits from a
DB scheme are obtained in the area of human resources management by motivating,
retaining and attracting staff. Historically, they have been formidable instruments
in this area. In this paper I show how regulation over recent years has served to make
DB schemes much less attractive as tools for human resource management.
The implications of these changes have hitherto been little discussed outside the
community of pensions experts but are very significant.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JFRC
16,3
220
Journal of Financial Regulation and
Compliance
Vol. 16 No. 3, 2008
pp. 220-229
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980810888831
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