Defined benefit pensions

Defined Benefit (DB) pension schemes are under unprecedented pressure, the result of increasing longevity, difficult market conditions and a tough regulatory environment.

Although recent years have seen many DB schemes close to new members (or even to further accruals by existing members), DB is still an important part of the UK pensions landscape. 2.4 million people are still saving in private sector DB and more than 5.4 million in public sector schemes.

Reforming DB

The NAPF has argued strongly that DB provision needs to be supported to prevent further decline.

For example, it should be possible for schemes to ‘go back to basics’ and provide simpler ‘single life’ DB pensions. Benefits such as indexation and spouses’ benefits would no longer be a legal requirement.
It should be easier for employers to establish schemes that share risks more fairly between employees and scheme sponsors.
Pension fund accounting rules should be reformed to take better account of the long-term nature of pension liabilities. The NAPF has commissioned experts from Leeds University Business School to review the current accounting standards and make recommendations for reform.

Challenges for DB schemes

The NAPF represents its members’ views on the full range of DB issues.

The Government announced in 2010 that private sector pensions should be able to use CPI as the measure of inflation for indexing pensions in payment and deferred benefits. We are concerned that the handling of this issue has created extra cost and uncertainty for schemes as they work out whether their rules will allow them to make this switch.
We have been assessing members’ appetite for investment in CPI-linked gilts.
We contributed to the Pension Protection Fund’s reform of its risk-based levy, the conclusions of which were announced in May 2011.
We have worked closely with HM Treasury and HMRC as they developed new tax rules based on a lower Annual Allowance.
We are lobbying the EU to ensure that DB schemes are not damaged by new rules on pensions security.

To get involved in our work on DB pensions, contact james.walsh@napf.co.uk

DWP consultation on GMP equalisation an NAPF response – April 2012

17 April 2012

The NAPF has urged the Government to drop its plans for new legislation on equalisation of Guaranteed Minimum Pensions. ‘GMP equalisation’ could...

DWP Select Committee told that EU rules based on Solvency II are the single biggest threat to UK DB pensions

27 March 2012

In her evidence to the DWP Select Committee yesterday, the NAPF Chief Executive Joanne Segars highlighted...

Better Regulation – Responding to the Red Tape Challenge: An NAPF call for evidence

07 February 2012

Conflicts of interest: new policy proposals – an NAPF response to Actuarial profession consultation paper

15 December 2011

The Actuarial Profession’s Consultation Paper proposes that the Scheme Actuary should not advise the employer about...

Derivatives:A practical guide to trustees' responsibilities

07 December 2011

Trustees must understand not only what derivatives are, but they must understand their responsibilities for the oversight of their scheme’s derivative activities and...

Quantitative Easing: the pension scheme perspective

08 November 2011

The NAPF has written to the Pensions Regulator highlighting concerns around the impact of the Bank of England’s recent announcement on Quantitative Easing (QE). This paper sets out the...

Accounting for Pensions

06 September 2011

Accounting for Pensions is a Leeds University Business School report commissioned by the NAPF as an independent investigation into...

Section 75 employer debt rules – NAPF welcomes reform

01 August 2011

The NAPF has welcomed Government proposals for a more flexible approach to employer debt in multi-employer defined benefit pension schemes...

A state pension for the 21st century: a response by the NAPF

28 June 2011

The NAPF has responded to the Government’s Green Paper A State Pension System for the 21st Century. The Green Paper put forward two options for reform of the current...

CPI: NAPF’s response to the DWP consultation

07 March 2011

The NAPF’s response to a Government response on inflation increases for pensions underlines the importance of simplicity and flexibility in securing...

Early access to pension saving: NAPF response to HM Treasury call for evidence

25 February 2011

The NAPF response to the HM Treasury call for evidence on early access to pension saving...

CPI survey report December 2010

10 December 2010

The NAPF has conducted the first authoritative survey of the implications for pension schemes of switching inflation increases from RPI to CPI.

PPF levy 2010-11: NAPF response to PPF consultation

18 November 2009

NAPF response ...

Employer debt and Section 75: NAPF response to DWP consultation

27 November 2009

Response to consultation...

DB key facts

Results from the NAPF Annual Survey 2011

Just 19% of DB schemes in the private sector remained open to new members in 2011, compared to 21% in 2010 and 23% in 2009.

The proportion of schemes also closed to future accrual for existing members has risen sharply, tripling over the past 3 years from 7% in 2009 to 23% in 2011. Around a third of schemes were planning changes in respect to existing members and a similar proportion were planning changes for new employees. Plans included reductions to scheme benefits and closing the scheme in favour of a defined contribution (DC) scheme.

The average DB pension paid out was £7,290 a year, down from £7,467 last year.

Funding levels saw a very slight recovery compared to 2010, but have not reached their 2009 levels. On average, schemes were 92% funded on a FRS17/ IAS19 basis, 92% on a PPF basis and 64% on a buyout basis. Figures for 2009 were 95%, 101% and 65% respectively.

The average scheme recovery period (the length of time over which scheme sponsors agree to make good a deficit) remained at 9 years, in line with the Pensions Regulator average, up from 7 years in 2009.

42% of total DB assets in the Survey (excluding the LGPS) were invested in equities, 33% in fixed income and the remainder in other asset classes.

The proportion of assets invested in UK equities fell from 17.1% in 2010 to 12.2% in 2011.

The proportion invested in fixed income assets has remained relatively stable.