Half of employers with defined benefit (DB) schemes could be closed to future accruals by 2011, trebling the number of sponsors that have already done so. This is according to research released today by Aon Consulting, a leading pension, benefits and HR consulting firm.
A seventh of DB pension schemes (14%) are closed to future accruals. However, those closing to accrual in 2006 included a number of household names, and this is expected to make this ënuclear optioní far more acceptable for others to follow.
Paul McGlone, principal and senior actuary at Aon Consulting, said: ìWe expect that the trend to close to accrual will follow the earlier trend to close to new entrants, but the question is how quickly. The average period between closing to new entrants and closing to accrual is currently around seven years. However we believe that this could accelerate, and that 2007 will be a tipping point for closures to accrual.î
While closures to accrual are expected to accelerate, other changes to DB scheme design have slowed. The survey shows a 20 percentage point fall in the proportion of defined benefit (DB) pension scheme sponsors contemplating changes to scheme design within three years ñ from 49% in 2005 to 29% last year. This is partly due to employers wanting a period of calm after recent changes, but is also a reflection of the increasing acceptance of the option to close to accrual.
For those sponsors resisting closure, there are increasingly interesting options available for their DB schemes, with issues such as hybrids and contracting back into the State Second Pension scheme being two options actively under consideration by many.
Mr McGlone continued: ìWhile costs, volatility and a harsh legislative environment will remain drivers for further change in DB schemes, it will be interesting to see if clever redesign can deliver new versions of the DB model that become affordable alternatives to final salary and withstand the ongoing pressure to close.î
Pension funds closed to future accruals will treble by 2011, warns Aon Consulting survey
Half of employers with defined benefit (DB) schemes could be closed to future accruals by 2011, trebling the number of sponsors that have already done so.
