The number of non-government employees adding to pension entitlements in defined benefit schemes fell by 100,000 in the year to March 2014, according to official data published today.
The proportion of DB schemes closed not only to new entrants but also to future accrual by existing members is now 34% (including the 2% of schemes that are in the process of winding up), up 2% on a year earlier.
John Cockerton, senior consultant at Towers Watson, said: “More than half of the active members in DB plans are in schemes that no longer accept new members – ignoring people who work for the Government. As these existing members retire, DB provision will further recede.
“There has been a steady trickle of employers choosing to accelerate this process by closing their schemes to existing members. We expect this to become more common by April 2016, when employers’ National Insurance rebates for defined benefit members who are contracted out of the second-tier State Pension will disappear. These rebates can be worth up to £1,165 annually, with the maximum paid where employees earn over £40,040. Some employers will absorb this loss but doing nothing can cost a lot of money, especially if you still have hundreds of members. It’s possible to tweak scheme designs to offset the cost but some employers will just see this as the final straw and close the scheme altogether.
The Government wants to see the pendulum swing back, so that more employers share risks with employees even if they won’t offer traditional final salary pensions. That’s welcome but most employers are unlikely to entertain this idea while they are still carrying so much pension risk from past commitments.
Today’s data shows that 84% of defined benefit memberships now relate to people who are no longer building up new benefits. Many employers now just want to get to a position where they can stop worrying about their legacy pension arrangements.”
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