On the go: The events of 2020, combined with exacerbating longer-term trends, could spark a wave of benefit reviews by UK companies, which in turn could result in a large number of defined benefit schemes closing in 2021, according to a new report by Aon.
In the first quarter of this year, scheme closures to future accruals were up nearly 10 per cent over the same period last year, a trend that is itself likely to accelerate as employers feel the ongoing impact of the coronavirus pandemic.
The report, summarising the findings of a survey of 300 private sector clients, showed that 68 per cent of schemes were closed to future accrual as of the end of the quarter, as opposed to 60 per cent by the same point in 2019.
Where schemes are closed, a large majority of employers take extra care to keep members in the loop, with 84 per cent of DB closures to future accrual over the past four years seeing employers go beyond their statutory minimum obligations in communicating with affected employees.
A majority of employers are likewise amenable to negotiating with members. Seventy-four per cent of scheme closures over the past four years saw concessions of some form offered to members over the initial proposal, a figure that rose to 90 per cent when trade unions were involved in the negotiations.
David Hughes, head of Aon’s benefit design team, said: “With a difficult economic outlook ahead, it is difficult to imagine that next year will not see finance directors taking a close look at what will often be the eye-watering cost of DB benefits.
“If you do still have an open DB scheme and aren’t planning to review it now, when would you, if ever?”
He added that when a decision is taken to close a DB scheme, it is vital that employers guide members through the reasons and consequences of the move.
Care should be taken to ensure that, where the traditional form of communications has been disrupted by the pandemic, town hall meetings being a case in point, alternatives should be found, Mr Hughes said.
“Similarly, the role and influence of unions in these exercises should not be underestimated,” he continued.
“Our survey shows that union involvement does have an impact on the level of concessions offered to members. As a result, where unions are involved it is even more important for organisations to think through potential member views ahead of time and as part of a broader DB closure strategy.”
