UK - Average member contribution rates could double to meet the escalating cost of running defined benefit schemes, industry experts warn.
Actuaries, lawyers, consultants and trustees believe prohibitive wind-up costs will mean schemes will remain open but their costs will soar.
And they claim that government moves to increase member protection could make matters worse.
Mercer HR Consulting European partner Matthew Demwell said: “Members are going to feel the pinch, because DB schemes are becoming unaffordably expensive.
“The burden of exposure to defined benefit is greater for employers under the government’s proposals and many of them would be better advised, in the interests of their shareholders, to go straight to DC rather than try to keep battling along with DB.”
And Denton Wilde Sapte solicitor Elmer Doonan believes average member contribution rates could double to 10%.
“Members will be putting their hands in their pockets to keep DB plans open.”
NAPF director of benefits David Astley said that in many cases trustees and employers would need to choose between decreasing benefits or increasing costs. And he advised trustees not to rule out running the scheme as a closed fund.
“Running as a closed fund will mean the employer will need to put money in, but won’t have to find the full buyout cost if it was being wound up.”
Thomas Eggar Trust Services director Vernon Holgate said it was not unreasonable to ask scheme members to help meet the mounting costs of DB schemes. “If there is an underlying improvement in the security and benefits a scheme provides, why should the employee contribution level stay fixed forever more?”
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