UK - Nearly a quarter of small to medium-sized companies are considering closing their defined benefit schemes during the next 12 months, a survey reveals.
Consulting actuary Hazell Carr’s study of 100 small to medium-sized companies also showed that 3% plan to wind-up their schemes altogether.
The survey also discovered that nearly a third of those contemplating scheme closures have not taken actuarial advice.
Hazell Carr warned that companies which close their schemes without doing so might increase their costs rather than cutting them.
This warning was echoed by the Federation of Small Businesses national pensions spokesman Terence O’Halloran.
He explained: “By closing funds, schemes have no new entrants to cross-subsidise the older members. So the cost of those closed funds is going to become even greater as time goes on.”
Hazell Carr director David Carr said: “Simply closing a scheme rarely solves the problems that led to the decision to move out of final salary provision in the first place. In fact, merely closing a scheme can often increase these problems, often for decades after the scheme has closed.”
However, Barnett Waddingham partner Colin Richardson was unconvinced by such arguments.
Richardson said that while closing a DB scheme would increase costs as a percentage of scheme members’ pay, total expenditure would be limited and would eventually go down as the number of members fell.
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