DB schemes start difficult year with £228bn deficit
UK defined benefit schemes ended 2015 with an aggregate deficit of £228bn after another difficult year, according to research from JLT Employee Benefits.
The figure has dropped slightly from the £248bn shortfall recorded at the end of 2014, but the firm warned schemes faced greater challenges in the year ahead.
Last year many large firms including Tesco and United Utilities announced plans to close DB schemes.
JLT Employee Benefits director Charles Cowling (pictured) said that pension schemes with triennial valuations last year will have seen record deficits, which could lead to "painful" rises in company contributions.
He said: "Looking forward, contracting-out will end in 2016, while there will be further tax changes to pensions, namely the reduction in the annual lifetime allowance (LTA).
"These changes mean that even with deficits and soaring costs aside, DB pension provision is looking less and less attractive in the private sector."
Cowling expects that the few remaining companies with open DB schemes will throw in the towel and switch to defined contribution (DC) provision.
He said that, although the recent interest rate rise by the Federal Reserve may offer some relief to DB deficits this year, other economic indicators did not look promising.
"We believe it is quite possible that we could got through the whole of 2016 without any interest rate rise. With the added worry for markets of a possible Brexit vote, there is every possibility that 2016 will prove to be another very difficult year for DB pension schemes."
Cowling thinks trustees and companies should be focusing on liability management, liability-driven investments (LDI) and buy-ins and buy-outs.
"As a consequence, we believe that 2016 could be another record year for the buyout market," he said.
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