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Closure of UK DB schemes rises to 25%

UK – Defined benefit schemes in the UK now account for over 14% of the average company payroll, with the number of defined benefit schemes in the UK that are now closed rising to 25%, says the latest annual pensions research jointly undertaken by research firms, the Pension Fund Partnership and MRM Projects.

The research finds that despite employees contributing on average 5% of their pay to DB schemes, the companies’ contribution rate has increased by two percentage points to 14%, practically double the amount they put into defined contribution plans, which is just over 7%.

Consequently the survey reveals that the number of companies with a DB scheme establishing a DC scheme for new employees has risen to 25%. Moreover, the number of companies likely to close their DB scheme to at least new members in the coming year now stands at 21%, up from 13% last year.

The report shows funding levels are falling. The average position is now 108.7%, compared with 111.2% last year. A year ago, 25% said their level exceeded 120%. The equivalent in the latest survey is just 16%.

Almost a quarter of schemes now report funding levels below !00%, compared with a figure of 12% last year. And the average among local government schemes is now 92.6%, with well over half reporting levels below 100%.

Despite the accounting standard FRS17 and investment manager performance being major areas of concern among UK pension funds, the research finds that the complexity of pension legislation is seen as the main problem facing the industry. 71% said this was their main challenge, whilst 62% were worried about underperformance against 53% by FRS17 and market volatility.

Asked what they would change if they could change just one aspect of the industry, 34% of pension funds said they would simplify or reduce legislation, with only 9% saying they would amend or abolish FRS17.

The research sought the views of 269 schemes of all sizes, representing £230bn (€358bn) and 4.5 members.








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