53% of final salary pension schemes close, leaving 4% still open

Written by Oliver Wade

A decline in the number of active and open defined benefit contribution pension schemes has continued, with 53% of final salary schemes closed to new members and 43% closed to future accrual, leaving just 4% open to new members, according to a survey conducted by Barnett Waddingham.

The survey also found that the number of frozen schemes has risen from the previous year from 37%, due to some schemes discontinuing the future accrual of benefits for all members to save costs.

The firm has stated that there is a strong focus on transferring risk from the sponsoring employer, which it has said is “not surprising” as 69% of schemes have a deficit on their company accounting basis.

Members of defined benefit schemes are now able to access new flexibilities, reported the firm, but this on the provision that it transfers to a suitable defined contribution arrangement.

“Our 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 partner Andrew Vaughan 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.”

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