UK - Defined benefit schemes are still going strong, despite the well-publicised drift towards defined contribution schemes.

So says a survey by Mellon Financial Corp.’s Human Resources & Investor Solutions Group, or HR&IS. The results showed that employer support for DB schemes has not evaporated.

Because of this, Mellon is urging the government to ensure the appeal of DB schemes to employers, in the face of increasing cost pressures.

It said one possibility would be to reintroduce tax credits on the dividends received by pension funds. “Our survey showed that 80% of employers would consider retaining their DB schemes if further tax incentives were offered,” said Kevin LeGrand, head of technical services at HR&IS.

“Another incentive would be to simplify pensions legislation. Over the years, this has become more complex, so we would suggest the government looks to rationalise things. We need a simple but stable legislative framework for the future.”

The survey – part of Mellon’s Key Pensions Issues Survey 2003 – was carried out among 229 of Mellon’s clients.
In spite of the support for DB schemes, 79% of those surveyed expected to change or review their company’s pension scheme arrangements within the next five years.

However, although 70% of respondents with DB schemes have considered switching, they have not done so yet.

There is a contrasting situation for smaller firms, according to research from the Association of Consulting Actuaries. The ACA 2003 Smaller Firms Pension Trends Survey showed that only 29% of companies with 250 or fewer staff offer DB schemes. And of these, only 36% are now open to new members.

The survey said that among small companies, group personal pensions, or GPPs, are now the most common type of pension arrangement, offered by 44% of these firms. The combined employer and employee pension contributions for these GPPs averages 8.6%.

Opposition pensions spokesman David Willetts said: “This survey shows that the divide between those in final salary schemes, and those outside, has widened still further. Ministers need to act urgently to improve incentives for companies to provide pension schemes for their workforces.”