A wall of money flowing out of defined benefit schemes into defined contribution plans could remove £100bn of risk from FTSE 350 schemes and reduce long-term liabilities by £15bn in the next decade, according to Hymans Robertson.

The consultancy has said the Chancellor's pension reforms, providing new flexibility and choice under a DC set-up from April 2015 could persuade many to transfer their DB pensions across to money purchase plans, particularly as their employers will offer them good terms to do so.

"We would expect 30 per cent of members would look to transfer to DC schemes in the wake of these changes," Hymans Robertson partner and head of corporate consulting Jon Hatchett said.

"If managed well this could be a significant opportunity for companies as well as delivering the Chancellor’s vision of flexibility for all pension scheme members."

Hatchett described the scenario as a ‘win-win’ situation, as it gives scheme members increased freedom and choice while providing companies with an opportunity to reduce deficits at the same time, shrinking liabilities and improving funding levels.

"However, companies need to refresh their communications to ensure employees are aware of the DC transfer option and at the same time give them the help and support they need to make the right decisions,” he added.

Hatchett's comments come after the release of Hymans Robertson’s sixth annual FTSE 350 Pensions Analysis Report which also found that pension deficits are more affordable due to improvements in sponsoring companies’ market capitalisations.

However, volatility remains a huge problem with the combined FTSE 350 deficit increased from £47bn to £64bn in August this year due to a drop in corporate bond yields.

As a result, the consultancy has also recommended that companies should take a slow and steady approach to funding their DB scheme, paying in lower levels of contributions over a longer time span. This would complement the Pension Regulator's new code of practice on scheme funding which has made the ‘sustainable growth’ of employers a key objective.

Share Story: