About two-thirds (65%) of respondents operate a defined benefit (DB) pension scheme, with final salary plans the most popular type. Most respondents’ DB plans are closed to new members or to future accrual. Larger employers are more likely to run a DB plan – 87% of respondents with more than 10,000 staff do so, compared with 75% with 1,001-5,000 staff and 43% with 100-500 staff.
Respondents are most likely to seek the services of a specialist corporate pensions consultant or adviser to help them operate their DB scheme. But just over one-fifth (23%) do not employ any external companies to do so (excluding trustee advisers).
More than two-thirds (69%) of respondents have 10 years’ experience or less of managing a DB pension on behalf of their employer.
In total, three-quarters of employers spend 10 days or less each month managing their organisation’s DB pension.
The pensions market seems to be in an almost constant state of flux. Defined benefit schemes, in particular, frequently hit the headlines as employers seek to manage risks and control costs.
Perhaps unsurprisingly, following the government’s decision to alter private pension indexation from the retail prices index to consumer prices index in July last year, this has been the most common change made by respondents to their DB plans in the last 12 months. Government initiatives look set to continue to influence employers’ actions over the coming 12 months, with 57% planning to introduce auto-enrolment in this period.
Some 84% of respondents said their DB scheme is currently in deficit. In just over a quarter of organisations,
more than 51% of their employee benefits spend goes towards financing the DB plan. However, given the economic climate and organisations’ focus on managing and controlling costs, it is surprising such a high percentage (42%) claim they do not know what proportion of this spend goes towards the DB plan.
The reduction of the annual tax-free pensions contribution allowance from £255,000 to £50,000 in April this year prompted some employers to review how they remunerate their higher earners. The restriction of the lifetime
allowance limit to £1.5 million from April next year could provide further impetus for them to do so.
In the past 12 months, half of respondents have helped affected employees understand how they might maximise their tax-effective pension saving, and onefifth plan to do so in the coming year. Ensuring staff are aware of the changes is vital, particularly for some long-serving employees on more modest salaries who may be affected.
But given the nature of the changes, not all employers will be affected. Around a quarter say they have not been affected in the past year or do not expect to be affected in the coming 12 months.
Just over two-thirds (68%) of respondents would consider a de-risking strategy that would remove their organisation’s DB pension risks within two to five years. Employers looking to de-risk their DB scheme have a number of options. Liability-driven investments are the most popular option, followed by enhanced transfer exercises.
Overall, respondents appear fairly comfortable with managing the risks associated with operating a DB pension scheme – a quarter said they are fully comfortable with these, while 44% are comfortable to a certain extent.
The Pensions Regulator’s data audit requirements indicate that 100% of new scheme data records and 95% of legacy data records should be audited by December 2012. Organisations appear to be well on the way to complying with these requirements. Just under one-third (31%) already meet the requirements, while just 4% of respondents have yet to begin the task.
Most respondents have also taken steps to manage the Pension Protection Fund (PPF) levy. Under proposals published by the PPF in a consultation document in September, the rules for calculating the levy would be fixed for three years instead of the current year and, if approved, will come into effect in April 2012. By fixing these parameters, the PPF aims to enable schemes to plan with greater certainty.
This research was conducted in September 2011 among readers of Employee Benefits magazine and users of employeebenefits.co.uk. The analysed sample is HR, benefits and pension managers who operate a defined benefit (DB) pension scheme in their own organisation. There were 257 respondents.
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