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Employers expect defined benefit pensions to be extinct by 2019


Employers are under increasing pressure to transfer company pension liabilities as they struggle to de-risk their schemes, leading three quarters to believe defined benefit (DB) pensions will be extinct in 10 years.

According to a report from Buck Consultants and Economist Intelligence Unit (EIU), transfers of pension liabilities will become more widespread over the next three years.

The future of corporate pensions survey, reveals over a quarter (27%) of company pension schemes plan to de-risk their portfolios over the next three years by transferring some of their liabilities to a third party. One in ten admitted they expect to transfer all of their liabilities.

According to Buck, the speed with which this trend has emerged is all the more surprising, considering 7% of companies transferred liabilities in the past three years.

The desire to transfer liabilities is fuelled by the fact 41% of employers claim managing increasing pension scheme deficits will be their biggest challenge of the coming years.

Coupled with the fact that nearly three quarters (73 per cent) of companies believe that defined benefit (DB) schemes will be extinct by 2019, this move signals a new phase in the pensions landscape.

Fraser Smart, director at Buck Consultants, explained: "Although the survey predicts the early demise of DB schemes, I expect that reflects more of a desire than the most likely outcome. Similar to increasing life expectancy over the last few years, I would put my money on DB schemes clinging to life longer than most of us imagine. In my view, this is backed up by the growing trend for incremental de-risking as part of a wider move to reduce future pension scheme deficits. De-risking is just one method of active deficit management, though."

But he added: "The DB system will be a thing of the past a generation from now - it relates to a job for life culture, not the working environment we have today. Instead of helplessly fanning the dying embers of DB, companies, employees and the government should embrace planning for the future in a predominantly DC culture. 

"If the UK is to fireproof the next generation against poverty in retirement, we cannot rely solely on the state to provide. This important research shows that companies do recognise the need for them to play a role in helping employees plan for retirement. The next step for corporates is to develop appropriate DC schemes for their employees that make a decent contribution and are flexible enough for the needs of our current workforce."