Membership in DC pensions set to reach 16 million by 2020

Membership of private sector defined contribution (DC) pensions schemes is projected to more than double, from 6.6 million to 16 million by 2020, according to research by the Pensions Policy Institute (PPI) and MetLife Assurance.

The research, The changing landscape of pension schemes in the private sector in the UK, found that the current 1.6 million private sector employees currently accruing benefits in a defined benefit (DB) pension scheme is projected to fall to less than 1 million by 2020.

It also found that the cost of funding a DB pension scheme has increased from 11% of salary in the 1950s to 21% in 2011. The risks of offering a DB scheme have increased substantially as well, due to a combination of factors, including increased longevity and changes to regulation and legislation.

Wayne Daniel, chief executive officer at MetLife Assurance said: “The future of private sector pension provision is defined contribution and the launch of auto-enrolment in October will significantly expand membership.

“Managing the legacy liabilities and assets of defined benefit schemes is a major issue for the pensions industry. The industry has to work harder to explain what is happening and how employers, trustees and employees should respond.

“Since the individual member assumes all the risk in a defined contribution scheme, it will be important that employees are helped to understand and make informed decisions about what is needed to ensure their future pension provision provides for a comfortable retirement.”

Niki Cleal, director at PPI and one of the authors of the report, added: “Defined benefit pension schemes have been in decline in the private sector in the UK since the late 1960s.

“Employers and pension scheme trustees are using a range of strategies to reduce the risks and costs of offering defined benefit schemes in the private sector. These strategies range from improving pension scheme funding, to making changes to or closing defined benefit schemes altogether, through to de-risking strategies that transfer some or all of the risks to an insurer.”

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