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DB accrual cuts will impact at snail's pace – Towers Perrin

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  • DB accrual cuts will impact at snail's pace – Towers Perrin

UK - Employers who halt defined benefit pensions accrual will see very little cost saving in the short-term, according to analysis conducted by Towers Perrin.

Research conducted by the pensions team has found the UK's 100 largest listed companies will have saved just 1% in pensions costs by the end of this year by closing DB schemes to future accrual - an equivalent saving of £3bn (€3.48bn), according to Mark Duke, head of pensions at Towers Perrin,

"Employers who cancel DB accrual mustn't fall into the trap of believing this will have a swift impact on their pensions," said Duke. As most of a typical DB scheme's liabilities represent employees who left the company long ago, halting payment for the relatively small proportion who do still work there will take a long time to make a difference."

While it should have little early impact, halting future accrual to DB schemes is likely to have saved firms £250bn by the time all members retire, should every FTSE 100 DB scheme from 1 July.

Towers Perrin argued companies should continue to seek out additional risk reduction routes, such as buyouts and buy-ins, deferred member transfers, longevity swaps and liability-driven investment strategies in their bid to limit pensions liabilities.

"Whether DB pensions are cut back or switched off, many companies can secure a material long-term reduction in risk," said Duke.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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