The number of large UK defined benefit (DB) pension schemes that are in deficit has increased, and more schemes have now closed their doors to future accrual, according to a new report.
In its latest annual survey, consultancy Barnett Waddingham reported that only 4% of schemes were open to new members, and the share of schemes now closed to future accrual had climbed to 43% from 37% in the previous year’s study.
Andrew Vaughan, partner at Barnett Waddingham, said: “For the sixth year running, these statistics show that year on year, schemes over £1bn [€1.1bn] continue to close for future accrual of benefits.”
This still left many firms with large liabilities to manage, he said, adding that the attractiveness of bulk annuity deals had grown over the last few years.
There had also been a rise in the potential for medical underwriting as a way of helping schemes derisk more cost effectively, he said.
The survey included data from more than 230 private sector DB schemes in the UK with assets of over £1bn, and was based on publicly available information up to 30 September 2017.
“The largest occupational schemes in the UK are an integral part of the economy and strongly influence the behaviour of smaller schemes with respect to developing innovative methods of sponsor support and risk mitigation,” Vaughan commented.
The data showed that 69% of the pension schemes had a deficit on their company accounting basis – up from 57% the year before.
Sponsors had also put more into the schemes to reduce deficits, with the average annual employer deficit contribution rising to around £208m from the previous year’s £60m, according to the survey.
Barnet Waddingham said this increase was largely due to two employers making large one-off contributions.
Regarding asset allocation, the survey showed a significant increase in the average allocation to “other” investments – a category comprising hedge funds and derivatives, or funds where it was not easy to see the allocation between different asset classes.
Around 38% of scheme assets were categorised as “other” investments in the latest survey, up from 29% the year before.
The median annual increase in transfer values paid out was 56%, the study showed, but the consultancy found that some schemes had seen an increase of over 200%.