UK - Small companies are rushing to close their defined benefit schemes in response to rising management time and poor investment returns, consultants PricewaterhouseCoopers claims.
The trend is confirmed by other consultants and actuaries with small companies in particular baulking at the costs involved.
PricewaterhouseCoopers actuary Peter Tompkins, commenting on companies looking to wind up, said: “It feels like there is a rush on at the moment.”
He explained: “Anybody knowledgeable on pensions working in any kind of small business is going to be saying ‘we should have a money purchase pension scheme.’
But employers wishing to switch pension arrangements face many unpalatable financial and management costs.
Companies planning to switch from DB to DC face paying up to £500-£1000 per member for financial advice.
Deloitte Touche chief investment officer and head of investment services Tony Osborn-Barker said the current poor market conditions meant it was even more difficult to make a decision on whether to go through an expensive winding-up process.
He said that schemes with even a slight deficit would have to weigh up the costs of carrying out a switch as well as the prospect of buying annuities at a time when the bond markets are down.
Gissings deputy managing director Andrew Dawson also reported a growing unhappiness at DB schemes by smaller companies.
He said: “The small schemes do begrudge the amount of time that running them actually takes, because it is much more work than it used to be.
• The £1.2bn Whitbread Group Pension Fund is closing its final salary scheme close to new entrants from January next year.
The former brewer said that its employees were often young and transient which meant that a DB scheme was no longer appropriate for the company.
Whitbread also quoted the potentially volatile effects of FRS17 on its large and mature pension fund on its balance sheet as another factor.
And the £150m pension plan of Dorset-based aerospace group Cobham is also considering closing its DB scheme as it reviews liabilities in the light of FRS17.
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