UK pensions market highlights move to DC

Less than a quarter of FTSE 100 companies provide defined benefit (DB) pensions to a significant number of employees, highlighting the move away from these schemes to defined contribution (DC), which places funding risk on the individual rather than the corporate sponsor.

The research by consultancy JLT Employee Benefits classed companies as having a significant DB exposure if they spent more than 5% of total payroll on ongoing DB service costs. A further 35 companies spend more than 1% of their total payroll on DB costs, says the research. The rest either do not have a DB scheme or pay out to only a handful of employees.

JLT Employee Benefits says there has been a decline in ongoing DB pension provision in the UK of 7% in the last 12 months alone.

“We expect this trend to continue,” says Charles Cowling, director, JLT Employee Benefits. “Government proposals to liberalise pensions announced in this year’s Budget and updated earlier this month, continue to make DC pensions more appealing to employees and corporates alike.”

The move towards DC schemes is even starker among the next layer of UK-listed companies. Whereas 60% of FTSE 100 companies still operate DB schemes, albeit ones closed to new entrants, only 41% of FTSE 250 companies do this, according to a separate report by consultancy Towers Watson.

Towers Waton’s report adds that 97% of respondents from the FTSE 350, an index which combines the FTSE 100 and 250 indices, said their main scheme for new hires was a DC scheme.

The shift to DC is happening in other markets too, notably the US. Another report by Towers Watson found that only 24% of Fortune 500 companies offered any type of DB plan to new hires at the end of 2013, down from 60% 15 years ago.

©2014 funds europe

 

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