Sixty-one percent of the UK’s top 350 pension funds are now closed to new staff. This is more than double the 30% that were closed in 2002, according to research conducted by JPMorgan Flemming Asset Management.
In lieu of defined benefit pension schemes, more UK firms are moving employees to defined contribution plans. Of the 350 top pension funds in the UK, 60% now have a defined contribution plan. Thirteen percent of these plans were introduced during the last year and 12% were introduced during the previous year.
“The move from defined benefit to defined contribution is clearly indisputable, and if this continues at around 12% a year, defined contribution schemes are likely to become the main means of pension provision for new members in the very near future,” said Karen Roberts, of JPMorgan Fleming Asset Management.
Outside of limiting new participants in their pension plans, approximately 40% of the firms canvassed said they had made significant changes to where they invested their funds during the past year, with 80% reducing the amount of money they held in equities and the same proportion increasing their holdings in bonds. Asked the reasons behind the investment shift, the main reason given for the switch was the need to match their assets to their liabilities more closely.
Additionally, s ix out of 10 pension funds had increased the amount employers paid into the fund, and 27% had raised members’ contributions.
“What is interesting,” continues Roberts, “is this survey shows that intended Government legislation to simplify pensions is unlikely to have any bearing on the decision by schemes on whether they decide to remain a defined benefit provider.” In fact, only 11% of the 350 top pension funds said proposed legislation to simplify pension taxation and administration would encourage them to retain their final salary schemes.
The move to defined contribution plans in the UK though appears to have reached a standstill. Nearly eight out of the 10 remaining firms (79%) that offer only a more traditional defined benefit scheme said they had no plans to introduce a defined contribution one in the future.