There is considerable uncertainty concerning the future for defined benefit schemes in the UK private sector, according to a report published by research organization Pensions Policy Institute.
The research shows that defined benefit (DB) pensions have been in decline for a number of reasons, including better than expected increases in life expectancy, low investment returns and increased regulation and legislation.
Scheme sponsors are reacting in a number of different ways to the challenges they face: reducing deficits or scheme benefits; changing investment strategies; shifting all, or some, of the risks associated with DB to the scheme members; or taking the final step and winding up or selling on DB pensions.
Around two thirds of private sector DB schemes have already been wound up or are closed to new members. Where there are replacement schemes they are predominantly defined contribution (DC) schemes, which can be less generous, place greater risk on the employee and have lower take-up rates.
But it is not yet clear if the third of private sector DB schemes that are still fully open to new members remain so because the sponsors are committed to continuing DB provision in the future, or because there are other barriers, such as poor funding positions, preventing them from closing the schemes.
Chris Curry, research director at Pensions Policy Institute (PPI), said: The cost pressures on DB schemes from rising longevity and uncertain investment returns are likely to remain. The future for DB pensions in the private sector remains uncertain. But it is likely that any future DB pension provision in the private sector will look very different to the provision of the recent past, with fewer schemes and risks shared differently between employers and employees.