Channel 4 plans to close its defined benefit pension scheme after its deficit more than tripled, having paused its consultation to give members a chance to understand the personal impact of the changes.
A valuation of the scheme at the end of 2012 showed a funding deficit of £101m on a technical provisions basis, a significant increase from the £30m calculated in January 2010.
DB closure countdown
September 2007: Scheme is closed to new members.
December 2012: Valuation concludes deficit has grown to £101m from £30m in 2010
April 2014: Corporation announces proposals to close the DB scheme to future accrual
June 2014: Consultation begins before being paused to give members "the opportunity to understand the personal impact of the proposed changes in more detail".
September 2014: Consultation recommences
Many DB schemes have struggled with increased funding deficits in recent years, further threatening their continuing accrual as the end of contracting out is set to increase costs further for some.
A spokesperson for the broadcaster said the increase was attributed to “similar issues to many other pension schemes”, pointing to lower gilt yields and lower expected returns on assets, as well as increased longevity.
The company proposed closing the scheme to future accrual on April 24 2014 at a member meeting, before following up with individual emails to members about the proposal.
The consultation reopened earlier this month and the scheme, which closed to new members in 2007, is undergoing the required consultation period.
“We are currently consulting DB members regarding a proposed closure of the scheme,” said the spokesperson. “This was commenced on June 26 2014 and was paused whilst members were given the opportunity to understand the personal impact of the proposed changes in more detail.
“Ahead of the consultation starting, the selection process for pension representatives was conducted.”
Members of the DB scheme will be moved into the defined contribution scheme, should the proposals go ahead. The DC scheme uses age-related contributions ranging from 3-6 per cent for employees and 5-13 per cent from the employer.
The broadcaster joins a host of household names that have turned off DB provision, with insurer Axa and telecoms company EE recent examples. “At the end of the day the deficit is always why they do it,” said Hugh Nolan, chief actuary at consultancy JLT Employee Benefits.
However, he added: “Closing the scheme doesn’t make the current deficit any smaller… it just stops it getting worse if they replace it with a cheaper scheme.”
Some schemes have closed to future accrual as companies seek to reduce risk.
Tim Giles, partner at consultancy Aon Hewitt, said: “We’re seeing widespread closures and potentially freezing of the benefit driven by the rising costs and volatile nature of them.”
However, the closures have also been driven by growing understanding of the risks such schemes pose to companies’ balance sheets.
“You would generally say that what’s driven the closure is the increasing understanding of the financial risks in the accounts and equally the rising costs of those,” Giles said.
Another threat to DB schemes is the end of contracting out in April 2016. Many DB schemes use contracting out to allow members to opt out of the additional state pension in exchange for a top-up from their employer. This then earns a national insurance rebate.
“The end of contracting out means schemes… either have to cut back on benefit or pay more themselves,” said Nolan. “[They] won’t want to pay more for what’s already a generous scheme.”
The introduction of the Budget’s increased flexibility next year will also pose a threat to private DB schemes, he added.
