UK Pension Report Makes Grim Prediction for DB Schemes

November 15, 2006 ( - A report by a UK financial services firm predicts that 46% of the country's defined benefit schemes will collapse by 2011 because it simply costs too much to run them.

According to The Guardian, a report by Alexander Forbes Financial Services says the expense of DB plans shot up with the passing of the Pension Act of 2004. Fifteen percent of schemes saw costs climb by more than 10%, and 4% of companies reported increases as much as 30%, the report says.

Among other things, the Act requires scheme sponsors to pay levies to the newly created Pension Protection Fund (PPF) (See  Britain’s Answer to PBGC Opens for Business ) to insure their plans and forced them to put money into underfunded schemes. On the other hand, according to the Alexander Forbes report, less than half of those surveyed believe the legislation actually strengthened DB pension security, the news report said.

Companies could see an even greater increase in the costs of DB plans if the PPF decides to hike the levies farther to cushion its £343 million deficit (See  UK Pension Protection Fund Could Hike Levies to Cover Deficit ).