Debi O’Donovan, editor of Employee Benefits: Can public sector rise to the challenge on DB pensions?

The Employee Benefits/Hymans Robertson Pensions Research 2009, published this month, shows that an overwhelming 87% of employers now offer a defined contribution (DC) pension scheme. This is now almost double the number of organisations that offer a defined benefit (DB) pension scheme (but bear in mind that most respondents are from the private sector).

Look closer and you see that of the 47% that do still offer a DB scheme, only half run it as their primary pension scheme. And of this small group, just 20% still have it open to new joiners. Three-quarters (73%) of DB schemes are now closed to new members.

In fact, so few private sector DB pension schemes are now open to new members that they are becoming a hindrance and a complication to reward strategies as benefits managers grapple with the extra communication, costs, administration and unfairness between groups of staff who belong to different types of scheme – taking into account the fact that staff in DB schemes are usually substantially better off than those in DC plans.

This is an extremely sad state of affairs, and in the coming years will finally push the last few DB schemes in the private sector into closure. Just as the demise of DB schemes in the private sector has been a great loss, if they were to go in the public sector as well, it would be a colossal folly.

But the gaping chasm between the private and public sectors can no longer be ignored. Public sector pension trustees and managers have to think hard about the future of pension provision via DB schemes. Their huge challenge is to avoid levelling down to current average private sector levels of provision by ensuring that the pension promises made to public sector workers are adapted to make them deliverable. Keeping to the status quo is not an option because it will cause a backlash among taxpayers and private sector employees, while pushing up government debt to ever more unsustainable levels.

The good news is that our research shows employers in all sectors do place a high importance on looking after their staff’s financial wellbeing, and the value of the pension in their benefits package has risen in importance in recent years, providing hope that employers will continue to seek ways to offer pensions that staff can afford to retire on.