Some 43% of defined benefit (DB) schemes are closed to future accrual, while just 4% are still open to new active members, according to analysis by Barnett Waddingham.
The results are based on the consultancy's annual survey on defined benefit (DB) schemes in the UK with assets over £1bn.
This year's survey of 230 DB schemes was based on publically available data up to 30 September 2017, and the analysis focused on scheme type, asset allocation, investment performance, deficit contributions, and adviser fees but not all schemes were included within each section.
The results showed 43% of final salary schemes are closed to new members and future accrual, up from 37% the previous year. Just over half (53%) were closed to new members, but still open to future accrual for existing members.
Some 69% of the schemes surveyed had a deficit on their company accounting basis.
The consultancy also noted a median increase in transfer values, at 56%, although some schemes saw an increase of over 200%. Also, 12 schemes received deficit contributions of more than £100m, up from six schemes in 2017.
Overall the results highlight the continued decline in DB schemes, commented Barnett Waddingham partner Andrew Vaughan.
He reinforced the importance of the largest occupational schemes as an integral part of the economy which strongly influence the behaviour of smaller schemes with respect to developing innovative methods of sponsor support and risk mitigation.
"The schemes invest substantial amounts of capital in the wider economy and are responsible for the retirement well-being of a large proportion of the population", he said. "For the sixth year running, these statistics show that year on year, schemes over £1bn continue to close for future accrual of benefits.
However, this still leaves many employers with large legacy pension liabilities to manage.
"We have seen the attractiveness of bulk annuity transactions increase over the last few years, as well as the potential for medical underwriting as an option to help schemes de-risk more cost effectively," he continued. "In order to mitigate the substantial business risk DB schemes have on their sponsoring employers, it is important to consider the more appropriate de-risking strategies for each scheme."
There is a strong focus on transferring risk from the sponsoring employer, which is "not surprising" according to Vaughan, as the majority of schemes are now in deficit.
According to Barnett Waddingham's report, volatile investment returns, increasing life expectancy, increasing levels of ongoing expenses and increasing amounts of government legislation have all contributed to the increasing cost of DB.
As members of DB schemes are able to access new flexibilities as a result of Freedom and Choice, providing they transfer to a suitable defined contribution arrangement, it is therefore hardly surprising then that many schemes are experiencing an increase in transfer value amounts paid.
The consultancy expects a significant increase in the level of cash payments to members in the coming years, whether as part of a one-off exercise or more standardised options near retirement. It also expects to see more bulk annuity transfers and liability management programmes, which have mostly been transacted by big schemes, to start filtering down to become increasingly available for the smaller schemes.
Nearly every trustee is confident of the next stage in their scheme’s strategy, despite almost an equal number being forced to consider replacing plans within the prior 12 months, according to research by Barnett Waddingham.
Companies could be overstating their pension liabilities by up to £60bn due to their life expectancy assumptions, according to XPS Pensions Group.
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment said last week.
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
Opportunities for defined benefit (DB) schemes to pursue investment approaches that help repair the UK’s economy cannot stand in the way of improving member outcomes, Aegon says.