More NewsUK Defined Benefit Pension Schemes Will Disappear this Decade, Finds Survey

UK Defined Benefit Pension Schemes Will Disappear this Decade, Finds Survey

The number of UK companies operating a defined benefit pension scheme is shrinking all the time, but the recent financial crisis has accelerated the demise of the final salary benefit, so much so that UK companies predict that defined benefit schemes will cease to exist within the next decade. This is according to a report, ‘The Future of Corporate Pensions’, by the Economist Intelligence Unit (EIU) and sponsored by Buck Consultants.

Asked about the biggest challenges their firms will face this year in managing their pension schemes, the 251 executives surveyed for this study point to increasing deficits, possible regulatory intervention and uncertainty over future interest rates. Of those UK companies surveyed, 20% still offer a defined benefit pension scheme that is open to new employees, but three-quarters predict that these schemes will no longer exist by 2019.

Other key findings from the research include the following:

  • Limited appetite remains for transferring liabilities to an insurer, but this is likely to be a growing trend post-recession. Just 7% of survey respondents say that they have transferred some of their liabilities to a third-party insurer in the past three years, while 6% have transferred all their liabilities. A growing proportion, however, see this as something they may consider in the future. Almost two-fifths say that they expect to transfer some of their liabilities in the next three years, while 10% plan to transfer the entire scheme.
  • Companies see pension schemes as an important competitive differentiator, yet they worry about the inadequacy of defined contribution plans. Asked about the key reasons for providing a pension plan – whether defined benefit or contribution – respondents point to the need to stay competitive with other companies in their sector. This highlights the importance of a generous, well-run pension scheme as a source of differentiation and a tool for recruitment and retention. Companies also recognise that they have a duty to provide for their employees’ retirement.
  • Most employers will maintain their contributions at a steady level, despite the forthcoming introduction of personal accounts. The average allocation to defined contribution plans among survey respondents is 9%, and almost two-thirds of respondents say that they will maintain employer contributions at the same level over the next three years. Smaller companies, in particular, are adamant that they will make no change to contributions, with three-quarters indicating that they will hold them steady.
  • Guidance for employees must improve as the pensions environment changes. Given that employees are increasingly responsible for investment decisions and the provision of adequate funds for retirement, companies must ensure that they put in place a robust framework for providing guidance and advice on an ongoing basis – not just when an employee first joins the company.

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