The Pensions Trust consults on DB pension closure

The Pensions Trust is consulting with employees about closing its career average defined benefit (DB) pension scheme to future accrual.

The consultation began on 1 July and will run until the end of September.

The scheme has been closed to new joiners for the past two years.

If it is closed, the scheme’s 100 active members will be moved to one of the organisation’s trust-based defined contribution (DC) pension schemes, which provide employees with a maximum employer contribution match of 12%.

Stephen Nichols (pictured), chief executive of The Pensions Trust, said: “We run a number of high-quality DC arrangements. We’ve got the Flexible Retirement Plan, the Ethical Fund, and they can also continue in the career average scheme, but within a DC section.”

The decision to consult on the closure of the DB pension is linked to The Pensions Trust’s trustee board’s investigation in its financial covenants.

Nichols added: “We are an occupational pension scheme, so our status is quite unusual in the marketplace. Because we are a not-for-profit organisation, we try to support employers within our sector. We do operate on very low margins and build up very little in the way of reserves.

“On the covenant assessment basis, which would apply to organisations that participate in our schemes, we don’t have a very strong covenant to make sure we can pay our way forever and a day in providing DB benefits.”

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The Pensions Trust has more than £5 billion under management, which the trustee is allowed to use if there is an expense shortfall. However, the trustee decided that recourse was not appropriate.

“Given that we are trying to support organisations in their pension provision, it would be wrong for us to rely on them to bail us out,” said Nichols. “It was on the basis of that, that the trustee felt that continuing to have DB accrual for our own staff wasn’t appropriate.”