Consultant Predicts Death of DB in UK by 2012

January 11, 2007 (PLANSPONSOR.com) - Defined benefit pension schemes in the UK will die out by 2012, according to a Towers Perrin report on its annual UK Corporate Pensions Survey.

IPE.com reports that the survey found only 21% of the 170 survey respondents offered DB schemes to new employees. Of those 32 companies, 11% said they plan to stop offering them within two years.

The Towers Perrin report authors put little weight on results from prior surveys which showed DB schemes as an employee retention tool.

“The period 2012 – 2015 will be a big junction for state pensions,” said David Bird, a senior consultant at Towers Perrin, according to IPE.com. “Then those companies doggedly remaining with final-salary pension schemes will say: ‘We’ve had enough.'”

The survey found that, although almost half of the companies polled have pulled back from providing pensions for existing employees, there is still a wide gap between DB value and defined contributions (DC). Average employer contributions to new DC plans were 6.9% compared to an average DB cost of 15% – 20% of payroll, IPE.com said.

Bird pointed out a prevalence of DB schemes in only the oil business, but said it is unlikely “the UK economy would have one sector with pension funds.” Meanwhile, the closure of the RBS DB scheme to new members last year (See RBS To Close DB To New Participants) left the financial services sector with no open final-salary scheme.

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