The number of defined benefit (DB) pension schemes that close over the next year will be double the current figure, predicts Hewitt Associates.

The global human resources consulting and outsourcing company's research shows that nearly 20 per cent of the UK pension schemes surveyed have now closed to DB accrual. The research showed other options, such as capping growth in pensionable pay or moving to a career average (CARE) scheme, are also being considered.

"The vast majority of pension schemes have now closed to new entrants, but the pace of closure to existing members is accelerating, with the number of "frozen plans" expected to double in the next 12 months," commented Jackie Daldorph, managing principal at Hewitt. "For companies now embarking on a plan freeze, the issue becomes how to do so, while still keeping the members, their unions, and trustee boards onside."

Hewitt said that where significant benefit changes, such as freezing the plan, are being proposed, employers must ensure they have a well-planned strategy in place, backed up by effective execution.
The Department for Work and Pensions' recent guidance on conducting benefit reviews backs this view up, Hewitt said.

Schemes must also proceed with caution and avoid short-cuts in the process. "There are often good reasons for freezing plans," explained Tony Baily, principal consultant at Hewitt. "However, the recent wave of plan freezes potentially puts pressure on other companies simply to follow suit - without really understanding whether this best meets their business objectives and constraints.

"For some companies the driving factor to freeze is to achieve equality of terms between DB and defined contribution (DC) members; for others it might be one of risk management. Whatever the reason, it is important to have a solid business case to help the workforce or trustee board understand the reasons for change."

The good news is that employers have not completely ruled out DB, with alternatives being used. "In some cases, this kind of approach may also be better received than freezing the plan," Baily concluded.

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