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
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.