UK- Accountant company Ernst & Young and food retailer Iceland have become the latest in a string of companies to wind up their employees’ defined benefit pension schemes.
Ernst & Young is closing the DB part of its £410m scheme, last valued at £290m, to new members next month and existing members will no longer be able to make contributions.
The company is freezing the scheme’s assets but will tie them to inflation capped at a maximum of 5%. Employees will be given the choice of joining the company’s defined contribution scheme or of opting out and sorting out their own retirement provision.
Iceland has also announced it is closing its DB scheme altogether in June, a move that will affect the 4,400 of its 28,000 employees in the final salary scheme. Last October it barred new members from entering the DB scheme.
Iceland is reported as saying existing benefits will be protected although it was unable to say how exactly. Like Ernst & Young’s employees, Iceland’s are able to join the company’s defined contribution scheme.
Both firms blame FRS 17, the accounting standard which requires funds to report assets and liabilities on the balance sheet. A spokesman for Ernst & Young added that greater longevity and falling investment returns were also behind the decision to switch to DC.
These same issues have led numerous companies to transfer from defined benefit to defined contribution and to shift the investment risk from themselves to their employees.
Lloyds, British Telecom and the brewers Whitbread are among others who have already closed their DB schemes to new members although unlike the latest two announcements, existing members have been allowed to continue contributing.