Defined benefit schemes continue to fall in popularity

The popularity of defined benefit schemes is continuing to decline while employers are demonstrating an ongoing annoyance, frustration and cynicism associated with government intervention according to a survey by Buck Consultants.

Respondents to this year’s survey are divided 50/50 over the value of their DB schemes. Half of the 123 respondents did not see their scheme as worth it, being too expensive to run. With continuing increased costs and complexity, the alternative of giving money directly to employees or to a DC scheme is now an attractive option for employers.

Over a quarter had considered inducement deals for members to transfer out, and a third have considered buying out liabilities.

Surprisingly 90 per cent of respondents felt they had a good understanding of the strength of the covenant of the scheme sponsor. Buck says this is surprising in light of the fact that the Pensions Regulator reports that not many sets of trustees have taken external advice on this subject, despite the sometimes complex legal ownership structures of sponsoring employers.

Kevin LeGrand, head of technical services at Buck, says: “For the first time in many years, the funding position of schemes was not at the top of the list of pension headaches. The somewhat benign economic situation over the period of the survey, combined with payments of higher contributions, has improved the funding position of many schemes; some are even in surplus. However, the recent turmoil in the markets and the current credit crunch have once again got employers struggling to come to terms with their future pension commitments.”