"Higher operating costs, especially for smaller schemes, combined with widening deficit levels mean DB schemes are under pressure as never before."
Since 2015, the mean running cost of DB schemes has increased by 37% from £400 to £546 per member, largely driven by increases in fund management and custody costs which are up 32%.
Smaller schemes, those with 5,000 or fewer members, have seen the greatest rise in running costs with an average increase of 63%, to £787 per member.
In 2016, only 10% of DB schemes were open to new members compared to 21% in 2015, with this figure dropping to just 4% in the private sector. The PLSA says rising costs, as well as economic volatility and low interest rates, are proving key factors in the decision to close to new members.
The research also shows that DC schemes continue to grow, fuelled by the success of automatic enrolment. Master trusts have played a significant role in automatic enrolment, enrolling an estimated 1.8 million new members between June 2015 and June 2016.
Within DC schemes the average employee contribution rates remain the same as 2015 at 4.2% and employer contribution rates sit at 7.9% (8.0% in 2015).
Joanne Segars, Chief Executive, Pensions and Lifetime Savings Association, said: “Our analysis highlights a continuing problem for DB schemes. Higher operating costs, especially for smaller schemes, combined with widening deficit levels mean DB schemes are under pressure as never before. We can’t ignore the resulting risk to members’ benefits for all but the most strongly funded schemes and for these members the risk is they will lose 15-20% of their benefits.
“Our DB Taskforce is currently collaborating across the pensions sector to develop recommendations on how we can change the industry to improve outcomes for members and schemes. Our Annual Survey clearly shows that the running costs of a DB scheme is considerable for all schemes – and even greater for smaller schemes. With over 6,000 private sector DB schemes in the UK the Taskforce will explore the potential of scheme consolidation to deliver better value to scheme members and sponsors.”
