DC schemes gain ground as cost of DB schemes spirals

New statistics from the Association of Consulting Actuaries (ACA) illustrate the shift towards defined contribution schemes (DC) from defined benefit schemes (DB) as the cost of contributions, legislation and creeping longevity makes them too costly.

According to ACA, 87% of DB schemes are now closed to new members and, of that, 18% of schemes are closed to future accrual. Additionally, one-third of the 300 employers ACA surveyed said their DB schemes are under review. Of those reviewing their DB schemes, ACA says 22% are mulling over moving to a DC scheme, though 35% are looking into a shift to career average schemes and 39% are changing their forward accrual. Nine percent are considering changing their scheme’s pensionable age.

ACA also found 90% of schemes were in deficit with an average ongoing funding level at their last actuarial assessment of 79% ­ a reduction of eight points on its last survey in 2007. It also says that 77% of employers think present legislation does not allow them to easily share investment, inflation and longevity risks with employees and 75% thought public policy should better support ‘middle way’ pensions designs.

“This survey confirms our worst fears about the loss of quality pension schemes and how this is now moving onto a new phase where future benefits for existing members are likely to be pinned back as employers struggle to hold down costs,” says ACA chairman Keith Barton.

“If we are to preserve as much private sector DB provision as possible, then the government must act during 2010 to free up pension designs, so employers can better control DB costs, while continuing to provide a more stable pension outcome than is possible with DC.”