The benefits to firms of cancelling defined benefit (DB) accrual for all employees will take time to filter through to and impact on pensions deficits, warns Towers Perrin.

The professional services firm has calculated that if the entire remaining FTSE 100 DB schemes were to close to future accrual on, say, July 1, the measure would only succeed in reducing FTSE 100 pension liabilities by one per cent by the end of 2009, a saving of around £3bn.

Mark Duke, head of pensions at Towers Perrin, commented: "Employers who cancel DB accrual mustn't fall into the trap of believing this will have a swift impact on their pension deficits. As most typical DB schemes' liabilities represent employees who left the company long ago, halting payments for the relatively small proportion who do work there will take a long time to make a difference."

This, Duke said, means employers must stop these "legacy pension liabilities" from spiralling out of control. "To do this they should focus on ensuring they have a clear de-risking flight path, using tools such as buy-out, deferred member transfers, liability driven investments and longevity swaps."

Were all DB accrual to be ceased on 1 July 2009, Towers Perrin has calculated that by the time all DB members have retired around £250bn of further DB liabilities will have been avoided.

"Whether DB pensions are cut back or switched off, many companies can secure a material long-term reduction in risk," Duke concluded.

- Pensions Age July 2009

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