A new survery of DB pensions continues to highlight the decline in schemes, with 53% of final salary schemes closed to new members and 43% closed to future accrual, leaving just 4% open to new members. The number of frozen schemes has risen from the previous year from 37%, as some schemes have discontinued the future accrual of benefits for all members to save costs.
The report, by Barnett Waddingham who looked at DB schemes in the UK with assets over £1bn, found a strong focus on transferring risk from the sponsoring employer, which is not surprising as 69% of schemes have a deficit on their company accounting basis.
As members of DB schemes are now able to access new flexibilities, providing they transfer to a suitable DC arrangement, it is hardly surprising that many schemes are experiencing an increase in transfer value amounts paid. The results show a median increase of 56%, although some schemes saw an increase of over 200% and less than 15% of schemes saw a decrease. A significant increase in the level of cash payments to members is expected in the coming years, whether as part of a one-off exercise or more standardised options near retirement.
Barnett Waddingham expects to see the actions taken by these big schemes, such as the increase in bulk annuity transfers and liability management programmes continue to filter down into the smaller schemes. Andrew Vaughan, partner at Barnett Waddingham, said: “The largest occupational schemes in the UK are an integral part of the economy and strongly influence the behaviour of smaller schemes with respect to developing innovative methods of sponsor support and risk mitigation. The schemes invest substantial amounts of capital in the wider economy and are responsible for the retirement wellbeing of a large proportion of the population.
“For the sixth year running, these statistics show that year on year, schemes over £1bn continue to close for future accrual of benefits. However, this still leaves many employers with large legacy pension liabilities to manage. We have seen the attractiveness of bulk annuity transactions increase over the last few years, as well as the potential for medical underwriting as an option to help schemes de-risk more cost effectively. In order to mitigate the substantial business risk DB schemes have on their sponsoring employers, it is important to consider the more appropriate de-risking strategies for each scheme.”
Find the full report here
Methodology: This is Barnett Waddingham’s sixth annual survey of private sector DB schemes in the UK with assets of over £1bn. It is based on publicly available data up to 31 October 2017 and focuses on scheme type, asset allocation, investment performance, deficit contributions, and adviser fees. The survey covers 230 schemes, but not all schemes are included in each section.