Defined benefit sponsors should be more imaginative with scheme design and move to 1/120th accrual rates with contracting-in to stop the death of final salary, an actuary argues.
First Actuarial scheme actuary Derek Benstead said sponsors are too quick to close their DB schemes and rush to money purchase schemes without looking at accrual rate changes which could make final salary workable.
He argued providing good provision for a few and lesser provision for the many is impractical.
“We are in a situation where a declining proportion of private sector staff are being over-provided for in their 1/60th scheme and increasing proportion are being under-provided for in a too basic money purchase scheme,” he said.
“Rather than providing too much for some or too little for others, let’s try and provide something basic for everyone.”
He added it made more sense for workplace schemes to contract-in to state second pension and allow the government to take on some of the burden for provision.
It is understood a number schemes are currently consulting on design changes to switch accrual rates into the hundreds under a career average system and start contracting-in.
National Association of Pension Funds senior policy advisor – workplace pensions James Walsh said: “Schemes look at the full range of options and they’ll always take actuarial advice and legal advice as well on what changes they can make to their rules.
“Changing rates of accrual would not be an unusual way for a scheme to make sure it’s sustainable in the longer term. A typical move would be from 1/60 to 1/80. So 1/120 is less common, but might work well in combination with other changes.”
Benstead added that the government needed to aid changes in scheme design by making rules more adaptable.
