Only one FTSE 100 company, Croda International, is currently actively accepting new members to its DB scheme, according to a new study of FTSE 100 companies by Isio.
Nearly 25 per cent of the major UK companies still offer DB pensions to at least some of their employees. Less than half of the 24 active member pension schemes, according to the report by pensions advisory business Isio, have a considerable amount of continuing pension build-up, with the remaining pensions being accessible to a relatively small number of workers.
Over the past ten years, 10 of the DB schemes in the FTSE 100 have completely closed, accounting for half of all closures. The bulk of the companies who closed their pension plans to new participants more than ten years ago did so because they knew that the plans would eventually contract and “self-close” to all pension accumulation.
Isio benefit change lead Scott Kendrick says: “In the current high inflation environment, we are seeing some companies facing increasingly significant pay claims. Against this backdrop, some will seek to make savings on their pensions spend, and at the same time address the pensions gap between DB and DC populations. However, we are also aware of companies putting pension change on the backburner to avoid potentially disrupting a post-pandemic recovery and tight labour market.
“Several of the remaining schemes have introduced significant reductions in the amount of salary that is eligible for continuing DB pension build up. In some cases, this makes it less likely that the schemes will be closed fully in future as there would be a significant financial cost to the sponsoring employer of doing so. Instead, we expect several of these schemes to be ‘run-off’ over many years.
“Royal Mail’s intention to open the UK’s first Collective Defined Contribution (CDC) scheme heralds a new era in benefit design innovation, although we expect only a handful of employers to follow them in setting up their own CDC schemes. However, in the race for talent and to promote effective workforce management, many companies will be forced to review their long-term savings strategies and explore CDC mastertrusts, decumulation vehicles and better member engagement tools as alternatives.”
