What’s happening with DB pension schemes?

Defined benefit (DB) pension schemes continue to be a hot topic in the business and financial worlds as an increasing number of people seek to transfer their pensions from a DB scheme. Recent figures suggest that more than four out of five (83%) of financial advisers in the UK have seen an increased demand for such transfers over the last twelve months, with over half (54%) describing it as a ‘significant increase’. Additionally, 71% of UK advisers said they expected the demand to increase further over the coming year.

A major contributing factor to this higher demand for DB transfers is the introduction of pension freedoms in recent years. Demand is also being fuelled by the continued uncertainty created by the DB pension scheme deficit. The latest figures suggest that the shortfall has remained stable over the past year despite the political turmoil: the deficit shrank to £183 billion at the end of May 2017, down from £194 billion twelve months earlier. That said, this is still a significant negative amount of money, which is undoubtedly contributing to many looking to ditch their DB pension in favour of something which appears to be more stable.

Employers, too, appear to be moving themselves away from DB pension schemes. It was reported at the end of May that BT is looking to close its DB scheme for current employees, a move unlikely to be popular with its workers; a similar move by Royal Mail Group following the company’s privatisation which aimed to shut the scheme to its current workforce led to strike action in April this year.

The AA has also recently confirmed that it will go ahead with proposed changes to its DB pension scheme, moving all members of the scheme to its existing career average revalued earnings (CARE) pension arrangement. The CARE scheme will also see amendments such as moving its indexation from the Consumer Price Index (CPI) to the Retail Price Index (RPI), likely to be more favourable for those receiving pension benefits.

Sources
https://www.theguardian.com/business/2017/may/30/bt-considering-closing-defined-benefit-pensions-scheme-for-existing-staff
http://www.telegraph.co.uk/pensions-retirement/financial-planning/five-questions-must-ask-swapping-final-salary-pension-cash/
https:// www.employeebenefits.co.uk/issues/june-online-2017/aa-move-db-pension-scheme-members-final-salary-care-arrangement/
http://www.actuarialpost.co.uk/article/demand-for-db-pension-transfers-to-increase-by-a-third-12220.htm (cont)
https://www.ftadviser.com/pensions/2017/06/01/defined-benefit-pension-deficits-remain-stable/