XPS Research reveals DB pension scheme closure considerations triple in 2020
XPS Pensions Group have revealed a three-fold increase in employers seeking advice on benefit change in 2020. Over 70% of the employers cited cost or risk management as being the compelling reason for commissioning advice. The findings come from a survey conducted by XPS on 425 of its clients.
The uncertain economic outlook brought about by Covid-19 was a key driver to this upturn and it is likely that the trend will continue in 2021.
The latest analysis produced by the Pension Protection Fund shows that 50% of private sector DB schemes continue to offer DB accrual, although this proportion has been decreasing at a rate of 2-3% a year. Over 20% of open schemes in XPS’ research are progressing benefit change. XPS expect this trend to contribute to an increase in the rate of closure shown in the Regulator’s statistics.
Jamie Hunter, Head of Benefit Change at XPS commented: “There has been a clear trend over the past 20 years for defined benefit schemes to close to accrual. Many have speculated whether the proposed funding regulations in 2022 will force the hand of the remaining employers to close their DB schemes, but we are actually seeing this happen now due to the financial consequences of Covid-19. In recent months, we have seen reviews from employers across a multitude of sectors.”
“Where employers are looking to close their DB pension schemes it is critical that they make these decisions for the right reasons, having fully considered potential alternatives including revised benefits within the existing DB arrangement.”
“Noting the requirement to consult with members on any changes proposed, employers will need to find ways of communicating with members in the current environment. This could include hosting webinars and providing follow-up 1-2-1 video calls for individuals wishing to engage further.”