The majority of defined benefit (DB) schemes with over £1bn of assets are now closed to future benefit accrual for the first time, according to data from Barnett Waddingham.

Its research found that 51 percent of ‘large’ DB schemes are now closed to future accrual, up from 33 per cent in 2016.

The proportion has been increasing by an average of 5 per cent each year, although this year’s increase of 2.5 per cent “could signal a slowing in the rate of closures”, according to Barnett Waddingham.

Only 3 per cent of large DB schemes remain open to new members.

Barnett Waddingham’s research also found that the number of schemes surveyed in surplus on an accounting basis increased from 33 per cent in 2018 to 55 per cent in 2020.

Equity popularity continued to decline, from 16 per cent of assets to 13 per cent during 2019 amongst the large schemes.

Over five years, equity allocation has halved, mainly being replaced with assets that better match liability movements, such as bonds and LDI assets.

Barnett Waddingham’s 2019 survey saw a spike in the level of transfer value payments made from the UK’s largest DB schemes.

However, this year's survey found that over 60 per cent of the UK’s largest schemes experienced a decrease in transfer value payments compared to just 5 per cent last year.

“This suggests that after a period of very high activity and in the context of increased regulatory scrutiny of transfer advice, the market for DB transfers might have reached its peak,” said the report.

Commenting on the findings, Barnett Waddingham partner, Paul Houghton, said: “Before the Covid-19 pandemic hit, DB pension scheme trustees had a relatively clear view of their long-term strategies, with The Pensions Regulator’s consultation on a new DB funding code expected to largely formalise current practice for a lot of large schemes.

“However, for some schemes, the recent financial market volatility will have spoiled the best laid plans. The impact will vary dramatically for each scheme depending on the level of investment risk being taken, illustrating the importance of monitoring funding strategy progress for all schemes during the current crisis.

“A lot of companies and schemes will be able to bear a certain amount of short-term volatility and will be able to accept a longer journey to endgame where necessary. For others, however, this might mean going back to the drawing board and a complete rethink of their DB endgame journey plan.

“As the industry’s trend-setters, the approach taken by the UK’s largest schemes will be of keen interest to the wider DB universe, as the industry contends with the new challenges presented by the recent crisis.”

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