The recession has continued to take its toll on private sector defined benefit (DB) pension schemes, according to new research by the National Association of Pension Funds (NAPF).
The NAPF’s Annual Survey has revealed that 23% of schemes remain open to new members, compared to 28% a year ago.
Further changes are also likely as more schemes than before have indicated that they will change benefits in the near future to new employees and/or current scheme members.
Pension funds believe the most effective way government could support pension funds would be to issue more long-dated and index-linked gilts, with 82% saying this would be either very or quite helpful. This single measure would help to reduce pension fund deficits and liabilities.
Key findings from the comprehensive analysis of 300 NAPF scheme members include:
• Contributions to defined contribution (DC) schemes have weathered the storm and have not been cut back as a result of the recession, as some suggested would be the case. Average contribution rates to DC schemes have remained stable and now stand at 11.5%. Additionally, 10% of schemes have suggested that they will increase contributions in future.
• DB pension funds’ allocation to equities has continued to fall: the average allocation to equities now stands at 44% compared to 51% a year ago. This is as a result of both falls in equity values and continuing de-risking by pension funds. The allocation to fixed asset classes has increased by 5% and this now stands at 38% on average.
• Uncertainty remains over the impact of the government’s 2012 pension reforms. 41% said they will maintain their scheme in its current form and auto-enrol their employees into it.
However, the risk of levelling down remains: 8% of schemes say they are planning to reduce their contributions in 2012. A further 10% said employees who do not choose to join the existing pension will be auto-enrolled into Personal Accounts at the minimum level and a further 13% are proposing other changes, while 27% of schemes have yet to decide what action they will take.
NAPF chief executive, Joanne Segars, said: “Our survey shows the high levels of commitment employers have in providing good quality pensions for their staff; but the recession has made their job more difficult.
“The government can no longer sit on its hands. It must take bold and positive action to help support employer-sponsored pensions. The Chancellor has a golden opportunity to make a difference in his pre-Budget report by announcing that the government will issue more long-dated and index-linked gilts. This single measure would benefit pension funds by helping to reduce deficits and support corporate scheme sponsors by reducing the scale of pension fund liabilities on their balance sheets.
“It is an opportunity that must not be missed.”
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