Three-quarters of defined benefit pension schemes closed to new entrants

More than 75% of defined benefit (DB) pension schemes have been closed to new entrants, according to Capita Hartshead’s annual Pension Scheme Administration Survey.

This figure is up from 71% in 2009.

The survey, which covers 414 UK workplace pension schemes run by 280 organisations, also found half of respondents (51%) are likely to revise current scheme benefits to hold down costs in the face of the introduction of auto-enrolment.

In addition, 31% of eligible employees have chosen not to join their employer’s pension arrangement and there seems to be little expectation that auto-enrolment will improve this significantly.

Based on experience, respondents expect 25% of employees to exercise their right to opt out. Among DC schemes the opt-out rate is expected to be 40%.

Two-thirds of pension schemes that had previously ruled out the possibility of outsourcing their administration would now consider doing so. This is up a full 35 points on last year’s survey and is most prevalent among defined contribution (DC) schemes.

Paul Sturgess, Capita Hartshead’s director of DC policy and product development, said: “It is no surprise people are taking a cautious view this far ahead of October 2012. Everyone has been affected by the recession and there is more hardship to come as the government’s steps to reduce the national debt start to bite.

“Once auto-enrolment comes into effect, I would expect to see fewer people opting out than predicted, if only due to inertia. Our job in the pensions industry is to use the next two years to increase the level of understanding so that people make a positive choice to save towards their retirement.”

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