UK - A third of open UK defined benefit (DB) schemes are considering either switching to a defined contribution (DC) arrangement or reducing costs or risks in the near future, the National Association of Pension Funds (NAPF) has revealed.

Findings from the NAPF's annual survey for 2008 showed the rate of closure of DB schemes remains stable, with 28% of schemes still open to around two million members, compared to 31% in 2007.

The NAPF claimed the rate of closure has remained stable in the last two years, as the figures showed there were 33% of schemes open in 2006, compared to the steep fall from 70% in 2002.

Despite this stability, the survey of 327 representatives from 502 pension scheme showed of the 28% with open schemes, 21% are considering a move to DC, while a further 10% are looking at ways of reducing costs or risks.

In particular, the survey showed while 67% of schemes would use their current contribution rates after the 2012 reforms, 19% claimed they would 'level down' either through lower contributions or by moving to personal accounts.

The study suggests the continued closure of DB schemes could be explained by increased running costs as schemes are spending 74% more on pension levies in 2008, equivalent to a median figure of £139,500 (€180,512).

This follows an announcement in May stating the Pension Protection Fund (PPF) levy for 2008/09 would be twice the expected level following market volatility, in an effort to meet the £675m funding target. (See earlier IPE article: PPF ‘war chest' levy doubles pensions pressure)

The results also showed the cost of governance and trustee training has increased 25% year-on-year to around £12,500, as the Pensions Regulator (tPR) has issued further guidance in recent months on conflicts of interest, clearance procedures, transfer values and scheme wind-up.

In addition, the cost of fund management and custody services rose by 20% to a median figure of £260,000, while adviser fees - such as lawyers, actuaries, accountants, consultants - jumped by 19% to a median of £260,000.

That said, 60% of schemes have not considered a full or partial buyout of the fund despite the cost increases, and just 5% have obtained a full buyout quote while 10% have received an estimate for a partial buyout. 

The survey also highlighted more positive news, as employer contribution rates into DC pension schemes remained stable at a median average of 7% - twice the minimum employer contribution of 3% required by the 2012 pension reforms - while employee contributions have risen from 4% in 2007 to 4.3%.

Figures also showed UK pension funds are continuing to diversify their assets, particularly in the current economic environment, as the proportion of investments in UK equities dropped from 28.2% in 2006 to 21.1%, while allocation into fixed income assets grew from 27.7% two years ago to 31.2% in 2008.

Joanne Segars, chief executive of the NAPF, said: "Despite market turmoil, employer commitment to pensions remains strong. However, there is still much outside pressure on pension schemes. Government, regulators and standard setters must take action to ensure the regulatory framework encourages good quality pension provision and continued employer commitment."

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