• Just 3% of large final salary schemes remain open to new members
• 67% of schemes have a deficit on their company accounting basis
• Significant activity seen in the insurance market as schemes look to transfer risk
• Trend for large contributions continues
The survey reveals that 64% of final salary schemes are closed to new members and a further 33% are also closed to future accrual, leaving just 3% open to new members. A greater proportion (35%) of Career Average Revalued Earnings (CARE) schemes remain open to new members. For both, the number of schemes closed has increased year on year.
67% of schemes have a deficit on their company accounting basis, which is lower than last year, when 75% of schemes were in deficit. Schemes with a lower, or no, deficit may be more able to secure their liabilities with an insurance company.
Excluding one significant outlier the average annual contribution made by sponsoring employers to fund their scheme deficit was around £97m. The variation in deficit contributions was substantial, ranging from around £3m to £1,500m. One large company recently announced its intention to pay a single contribution into their defined benefit scheme representing the acceleration of 10 years of contributions that had already been agreed.
Other key findings for the survey:
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The average 3 year investment return was around 10.4% per annum.
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There was an increase in the asset allocation to pooled funds and alternative asset types such as derivatives, emerging market currency and hedge funds, with a corresponding reduction in equity investments.
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The average PPF levy paid was £2.75m, corresponding to 0.03% of scheme assets.
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Since the introduction of more pension flexibility in April 2015, the larger schemes have experienced a more significant increase in transfer value activity than smaller schemes.
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Innovative liability management deals are becoming more accessible to mid-sized pension schemes.
Andrew Vaughan, partner at Barnett Waddingham, said: “The private sector’s big schemes are the industry’s trendsetters and activity we are currently seeing now, such as the removal of longevity risk and liability driven investment strategies, will inevitability work their way down to smaller schemes.
“Only a handful of big defined benefits schemes remain open to new members and the number closed to future pension accrual is increasing year on year. Many of these will ultimately be looking to the insurance market to transfer risk through buy-outs or buy-ins, medical underwriting and longevity risk transfers. We have seen a significant amount of activity in these markets in the last year and we expect this to continue.”
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