Half of employers expect to close defined benefit pension schemes within five years

The soaring cost of meeting the requirements of the Pension Act 2004 may be to blame for the rise in expected closures, the findings of a survey by Alexander Forbes Financial Services conclude.

Six out of 10 DB schemes have seen their costs rise as a result of the Act, including the provisions for the Pension Protection Fund (PPF) and scheme specific funding, which sets out requirements for funding strategy.

Of these, 15% have seen costs rise by more than 10%, and 4% of schemes have seen their costs rocket by more than 30%.

Confidence in recent legislation to increase security of members’ pensions is also mixed. Less than half of the schemes surveyed (44%) believed that the introduction of the PPF and scheme specific funding had greatly increased the pension security for members of their company’s DB pension scheme.

Robert Macgregor, corporate development director at the firm, said: “It’s quite clear from the survey that businesses are struggling with their defined benefit pensions.

“A very high proportion of employers expect to end all DB pension provision within the next five years – building on the already strong trend to switch from DB to defined contribution.”