UK - Government plans to boost protection for final salary scheme members will accelerate the trend away from DB to DC, consultants claim.
As part of its plans to increase member protection, companies with DB schemes will have to pay insurance premiums into Pension Protection Fund and meet the full buy-out costs when they wind their schemes up.
However, both Gissings and Mercer Human Resource Consulting believe that due to the increased costs of running DB schemes, companies will increasingly choose to just close them to new members – rather than winding them up – and open DC schemes.
Every section of a DB scheme comes at a huge cost to employers and “it just got tougher,” Mercer European partner Matthew Demwell said.
Gissings director Tim Webb agreed: “This will encourage people to make the move – certainly for new employees and probably more so for current employees – into DC, because they are effectively picking up funding costs which are equal to the full pension buyout costs.
“The implication of that must be that there will be a significant move towards DC, although when you make that move it will be more painful.
“The government is banking on the fact that the pain of meeting full buy-out costs is too great, so people will stick with their existing schemes.
“But what companies will probably do is stick with their existing schemes, but run them as closed funds moving forward.”
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