Death knell sounded for defined benefit pension schemes

by Gill Montia

Story link: Death knell sounded for defined benefit pension schemes

A new report on UK company pension schemes suggests that half of all defined benefit schemes will close within the next three years.

The cost of providing the schemes is escalating as a result of increased longevity.

At the same time, funds have lost value during the credit crisis.

As a result, the majority of the UK’s defined benefit schemes are already closed to new members but more firms are now opting exclude existing members as well.

According to Watson Wyatt, 9% of companies have shut schemes to existing members, but the figure could rise to 50% by 2012.

The firm’s head of corporate consulting, Rash Bhabra, says: “Companies who were delaying a decision on closing their schemes to existing members until others had stuck their heads above the parapet are now ready to act.”

If the forecast is accurate, an estimated one million members of defined benefit schemes will be transferring to defined contribution arrangements in the years ahead.

In related news, a recent report from PricewaterhouseCoopers claimed that 96% of UK businesses with defined benefit schemes believed their schemes were unsustainable.

In addition, Aon Consulting has revealed that the combined deficit of the UK’s 200 leading defined benefit pension schemes increase to £73 billion during the second quarter of 2009, largely as a result of falling yields on corporate bonds.