Most DB schemes closed to current and future entrants

Nine in every ten defined benefit (DB) pension schemes in the UK are closed to new entrants, while those closed to future accrual has doubled to one in every five, according to the Association of Consulting Actuaries (ACA) – which has called for a special pensions commission to be formed to challenge the legal and regulatory hurdles standing in the way of long-term pension reform.

A poll of UK companies by the ACA shows that only 6% believe the government’s stated policy of supporting quality pensions is working; 87% of DB schemes have closed and 91% of them show a funding deficit, while a third are currently under review while changes in forward accrual and a move to career average are being considered.

But the rise of defined contribution (DC) schemes has not filled the gap. Half of all DC schemes attract employer contributions of less than 6% of earnings and less than 4% from employees, ACA says, while pension outcomes for an increasing number of private sector employees are likely to worsen over the years because of much lower investment returns and people living longer.

The ACA says 76% of employers would support a ‘middle way’ pension scheme somewhere between DB and DC, if legislation allowed. The association suggests a new, independent body should be set up to lobby government to force through changes to pensions legislation that will ease the way for business to respond to the myriad funding and longevity issues they face.

“The commission should be charged to come forward with the legal changes needed to allow employers to offer a wider range of pension designs, where employer costs can be capped in the event of demographic and economic changes, while also reducing the volatility in pension outcomes for employees,” says ACA chief executive Keith Barton.

www.aca.org.uk