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The Actuary The magazine of the Institute & Faculty of Actuaries

Four in five DB pension schemes to vanish over next 25 years

The number of defined benefit (DB) pension schemes in the UK will shrink to less than a fifth of current levels over the next quarter of a century, according to predictions by Hymans Robertson.

Declining DB pension schemes ©Shutterstock
Declining DB pension schemes ©Shutterstock

The consultants said in a new white paper that DB consolidation will manifest in a whole range of forms during that time, with the number of schemes falling from today’s 5,500 to around 1,000.

This will be part of a continuing drive to reduce running costs, improve the security of members’ benefits and manage risks more effectively.

“We’ll see the popularity of consolidation solutions such as sole trusteeship, DB master trusts, investment platforms and other ‘mid game’ consolidation vehicles take off,” Hymans Robertson partner, Jon Hatchett, said.

“Contrary to popular belief, this doesn’t need legislative change to happen, it’s already happening. We’ll also see new innovations enter the market, ranging from non-insured risk transfer vehicles to superfunds.”

It is expected that DB assets will shrink to around half of today’s £1.5trn in 25 years’ time – although still a sizeable £700bn – while the combined UK deficit should decrease from £800bn to £200bn.

In addition, Hymans Robertson anticipates there will be a 93% drop in the number of trustees, falling from 30,000 to around 2,000, while there will also be a 90% reduction in benefit sections within schemes.

Hatchett said that around one million members of DB pension schemes could be consolidated into master trusts, and that two million will reach the “end game” and move into buy-outs with insurers.

He added that another 500,000 members could fall into the Pension Protection Fund along the way, while approximately one million are expected to transfer out of DB schemes following freedom and choice reforms.

“From the perspective of employers, the cost of sponsoring DB schemes has been eye-watering,” he continued. “They’ve paid hundreds of billions of pounds in deficit contributions and on average seen deficits continue to rise.

“Consolidation, in all its guises, will definitely have a role to play in moving us towards a better future for DB schemes, their members and sponsors.”

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