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Over 40 per
cent of UK defined benefit (DB) pension schemes are expected to
have closed to future accrual within the next five to ten years,
according to Watson Wyatt’s Pension Plan Design Survey
2008.
The twelfth year of the biennial survey shows this expectation as
up from the current six per cent, and that over the same period,
the proportion of DB schemes open to new entrants is expected to
fall to just 14 per cent from the current 25 per cent.
The survey of the shape of the UK private sector workplace pension
schemes shows continued retreat from DB pension provision, with
companies improving the level of contributions and seeking ways
to improve member engagement.
The employer contribution rates to defined contribution (DC) provision
was also looked at, and over 60 per cent of employers believe these
rates will be higher over the next five to ten years. Over the last
two years, the survey shows that contribution rates to DC plans
increased by almost two per cent of salary to an average of 14.7
per cent, and
16.9 per cent for plans with matching employer contributions.
Companies are also shown to be seeking to address DB benefits that
have already built up, and half the respondents to the survey expect
to have attempted to remove their DB legacy – through a pensions
buy-out or other type of transaction – within the next ten
years.
Kathryn Armitstead, a senior consultant at Watson Wyatt, commented:
“A small but growing number of companies are ceasing final
salary accrual for existing members and this trend is expected to
accelerate. Others are increasing member contributions or reducing
the rate of accrual.
“However, many of the organisations in our survey see great
value in providing pension benefits to their staff. We are seeing
employers increase the contribution rates to their DC plans in order
to deal with the twin issues of longer life expectancies and low
interest rates which are leading to lower benefits than were originally
envisaged for members.”
The survey also found that DC plans now make up 75 per cent of open
work-based pension plans, and that, on average, the DC plans surveyed
provide employer contributions worth 9.5 per cent of salary in return
for employee contributions of 5.2 per cent.
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Pensions Age July 2008
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