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Quarter of small UK companies to close DB schemes

UK- A quarter of small UK companies with a final salary pension scheme intend to close or wind it up this year, according to new research. In a report by the actuarial consultants Hazell Carr, more than a fifth of the 100 companies covered are closing their schemes to new entrants while 3% have decided to wind up them up altogether.

Companies mentioned stock market volatility and increasing costs as the largest threats to their schemes. A fifth cited low investment returns.

The findings come in the wake of numerous larger companies including Ernst & Young, the supermarket group J Sainsbury and British Airways announcing the closure of their final salary schemes to new entrants.

FRS 17, the new UK accounting standard that requires companies to report assets and liabilities at market value, has been widely blamed as a reason for the recent spate in closures.

However, only 13 of the 100 small companies surveyed claimed the standard was the main threat to their pension fund. Four out of ten said it had no effect on their schemes.

The survey found that nearly a third of the companies have yet to consult their actuaries on the future of their company schemes.

"Given that these schemes have been in existence for decades, this is an almost unbelievable proportion of employers intending to close or to wind up their schemes in a year," says David Carr, a director at Hazell Carr.

In the survey, over one third feel that winding up their scheme is a practical measure. Of the 47 companies who believe closure is not a viable option, 45% say it would have an adverse affect among staff and 8% believe it would be too expensive.

Of those companies running money purchase schemes alongside final salary funds, almost three quarters admitted to contributing less to the former.

This echoes research by KPMG Pensions published in February that showed half the 74 UK funds it surveyed were contributing less than 5% into their DC schemes, compared with an average of over 10% for final salary schemes.

Two thirds also expect their recommended contribution rates to increase. This is of particular concern to small companies as a greater proportion of their workforces are typically in the company scheme.

Companies with up to 300 employees have, on average, 81% of the workforce is in the scheme compared with a corresponding figure of 62% for companies employing more than 1,000.

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