DB schemes' worries over deficits and regulation - NAPF

The biggest concerns for the future for private sector defined benefit schemes are deficits, regulations and Pension Protection Fund (PPF) levies, according to the National Association of Pension Funds (NAPF).

In its Annual Survey for 2005, the association questioned over 400 employers responsible for a total of 1,117 pension schemes about topics including, concerns for the future, and their preparedness for A Day.

With a rating out of 10, deficits came at the top of schemes’ concerns for the next five years with a score of around nine, closely followed by regulations and PPF levies which scored around eight to eight and a half respectively.

Upcoming changes associated with tax and A-day came further down the list of worries, with around 80-90% of respondents saying they felt well prepared for April, although, according to NAPF chief executive Christine Farnish, the larger companies were, by and large, better prepared for the changes than smaller firms as they had access to more resources.

Another concern for respondents is an increase in running costs, particularly among private sector DB schemes. The survey revealed only 43% of private DB schemes are still open to new members at present as over the last year 37 DB schemes have closed to new members - 20 of which were in the manufacturing, engineering or construction sector, while another four are closed to future accruals.

As a result of these concerns, 24% of respondents expect to close their DB scheme over the next five years, either to new entrants, to future accruals or to both.

In contrast, 110 private sector DB schemes said they would take different steps to try and contain costs, including reducing accrual rates, changing early retirement terms and changing the definition of “pensionable earnings”.

Commenting on the report, Christine Farnish said findings came mainly from the more positive end of the spectrum.

“Employers have been struggling with the increased costs of providing workplace pensions for some years now," said Franish.

"This year’s survey provides more evidence that many are at or near breaking point. Pension providers are being innovative in exploring ways to manage costs, but ultimately what is needed is fundamental reform of the whole pensions system. Britain’s workplace pension schemes need better, not more regulation. Our hope is the Pensions Commission will produce a blueprint for radical long-term reform of Britain’s creaking pensions system.”

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