DB Pensions are a ‘nice’ idea but in todays world almost impossible to fund.

With investments providing lower returns than normal due to the low interest envoirement plus people living longer it is now virtually impossible to support defined benefit schemes.

Many schemes have already closed as companies try to unwind their increasing liabilites.

Research by Employee Benefits/Capita Pensions Research 2013 found recently that 78% of respondents that offer a defined benefits pension plan will at least partially close their schemes with two years.

15% of respondents with a DB scheme plan to review their plan’s future and 8% have varying plans for their different legacy schemes.

The research, conducted among 370 HR and benefits managers, found that 6% of respondents have already decided to close their DB scheme to future accrual and 4% plan to close it to new entrants. A further 4% have decided to close their scheme to both future accrual and new entrants.

By comparison, in Employee Benefits’ 2008 Pension survey, 4% of respondents said they planned to close their DB scheme to new entrants and 2% planned to close it to future accrual. Also, 5% of employers planned to introduce a cash incentive to encourage staff to leave the scheme.

I think companies are starting to face reality, but I suspect the vast majority of employees have no idea their companies past and present have no commitment to their pension schemes.

It is now more important than ever for individuals to review their own pension schemes to avoid nasty shocks in the future.

Nigel Green deVere Group

Blog written 9th September