UK - The shift from final salary to defined contribution provision continues unabated, the latest JPMorgan Fleming Defined Contribution Industry Survey reveals.
Some 50% of respondents now have some form of DC provision in place – an increase of 11% on the previous year.
JPMorgan Fleming’s head of DC services Julian Lyne said: “The last three years have certainly been difficult for the UK pensions industry. From dealing with the plethora of government-inspired reviews, to facing the realities of three years of negative equity returns, all involved in the UK pensions arena have had a tough time.
“So how have pension schemes responded? The fourth annual JPMorgan Fleming Defined Contribution Industry Survey has taken the opportunity to look at what action UK occupational pension schemes have taken in the last 12 months, and try and understand what influenced these decisions.
“This year’s survey was the most successful of the four JPMorgan Fleming has carried out, perhaps reflecting the heightened awareness of the current challenging environment. The survey was sent to 350 of the largest pensions schemes in the UK, and we received responses from 152 organisations, a cross-section representing close to £200bn of assets and 4.6 million members. JPMorgan Fleming made a donation of £5 to Cancer Research UK for every completed survey returned.”
The aim of the JPMorgan Fleming Annual Defined Contribution Industry Survey – which is available at the conference – is to gauge the driving forces affecting pension provision in the UK.
Although DC is a key focus, the survey also attempts to look at the broader picture of pension provision.
Respondents answered questions on such diverse issues as DB scheme asset allocation, changes in contribution levels and member communications. This year JPMorgan Fleming also assessed the reactions of pension schemes to the recently published government proposal on pensions, and questioned their expectations of what these proposals would mean.
Lyne says that what is clear from the survey is that the rate of movement to DC provision continues unabated. Half of the respondents now have some form of DC provision in place – an increase of 11% on the previous year. In addition, a further 16% of companies say they intend to introduce a DC-type plan in the next five years.
But although the move to DC arrangements continues, the survey also revealed that a core number of employers remain committed to DB schemes as a means of differentiating themselves from other employers. Other employers see that DB is the approach best suited to their needs.
This polarisation between employers has been growing over the last few years. It is also important to note that although the move to DC is continuing, DB arrangements still dominate in respect of assets under management and numbers of members.
Respondents to the survey gave the breakdown (see table below) of assets under management and scheme membership for the two types of arrangement.
These figures only show one side of the picture, however. The survey revealed that while 95% of respondents do have some form of DB provision in place, nearly 50% of those questioned have either closed the schemes to new members, or they only offer the DB scheme to certain employees.
Last year when this question was asked the comparable figure was only 30%, so this represents a significant increase.
The results from this survey also need to be considered within the context of the survey sample. If these are the trends within the top 350 pension schemes in the UK, then they are likely to be magnified among smaller schemes, as smaller companies are likely to be even less able to pay for the increased cost of DB provision.
The Pensions and Lifetime Savings Association (PLSA) is in the process of convening an industry-wide group to take forward the work of the Institutional Disclosure Working Group (IDWG).
The Transfers and Re-registration Industry Group (TRIG) has given its support to an initiative which aims to complete occupational pension transfers within three weeks.
Scottish Widows has completed a bulk annuity deal for the Hitachi UK Limited Pension Scheme.