Offering DB scheme is ‘too risky’ for smaller companies - EXCLUSIVE

The financial services firm said smaller companies must consider whether offering a DB scheme would put their business at unnecessary risk and whether a contract-based defined contribution scheme would make more sense.

Alexander Forbes Financial Services director David Marlow said the firm was a strong supporter of DB schemes and keeping the industry active, but only for companies who had enough capital to ride out volatility.

Marlow added sponsors who could not afford the liabilities that come with DB could end up threatening their core businesses and ultimately their employees.

But he said there would always be a place for DB within the employee benefits package because companies would use it to differentiate between employers of choice and between the public and the private sector.

“If you have got a business to run, why do you want to be an insurance company as well? Focus on your core activity. DB can affect the core of a business,” he said.

Marlow said there were currently 7800 schemes contributing to the Pension Protection Fund levy, of which many were sponsored by small to medium sized employers.

“These could be companies that are fundamentally committed to DB or have not considered capping off their liabilities. There needs to be a message, an active communications programme to deliver a good communications process.”

Marlow said the alternatives to DB were closing the scheme to future accrual, offloading liabilities or offering a good DC scheme.