Managing Closed Schemes
Recent research carried out by the Association of Consulting Actuaries revealed that more than 60%
of the UK’s final salary or defined benefit (DB) schemes are now closed to new entrants. Most of these
schemes have been closed in the last few years, usually in an attempt to reduce the size and variability
of pensions costs falling on employers.
But closure does not solve things overnight. In fact, without appropriate planning, things can actually
get worse rather than better. Closed DB schemes do not wither away and disappear as quickly as many expect.
They often need even more careful management than open schemes, and their financing should be approached
in a new way.
What makes closed DB schemes so different?
- Once the Scheme is closed, employer contributions based on the active
members’ payroll will begin to reduce and will dry up sooner or later.
The pattern of cashflows to and from the scheme can therefore change dramatically.
- There is far less opportunity to smooth out good and bad experience between
generations of members.
- The countdown to wind-up has begun, and the objectives of the company and
the trustees can become much more polarised.
LCP has developed new ideas and techniques to help manage these issues from the point
of closure until eventual wind-up.
Our Closed Pension Schemes service guide has further details of our service.
