The biggest listed companies in the UK paid more into their defined contribution schemes in 2023 than into defined benefit schemes, new research has found.
Willis Towers Watson’s analysis of FTSE 350-listed companies found that they paid a total of £6.6bn into DC schemes last year. This compares to £5.1bn paid to DB schemes during the year.
It marks the first time DC payments have exceeded DB payments for this group of companies, according to the consultancy group.
The figures reflect several factors, according to Bina Mistry, head of UK corporate pensions consulting at Willis Towers Watson.
Improving funding levels for DB schemes have meant that some companies have been able to “switch off” deficit contributions, Mistry said, and there were fewer large one-off cash injections into schemes.
DB accrual has also become cheaper due to higher interest rates, meaning 2023 was the first year in two decades that there were no scheme closures among FTSE 350 companies – although just 28% of schemes in this group remain open to future accrual.
“In some cases, using a surplus to pay for DB accrual will have been the only way for the sponsor to benefit from it immediately,” Mistry said.
“Proposals to make it easier for employers and trustees to share surpluses could change that, depending on how they get taken forward after the election – but employers persuaded to run their schemes on for longer would have another reason to keep accrual going.”
For DC schemes, the continuing growth of schemes – in particular master trusts – due to auto-enrolment has fuelled the increased payments.
Mistry said: “As DC increasingly becomes ‘where the money goes’, we need more attention on how to deliver the best balance of risk and return, and on how to support members seeking to make a pot of ever-changing size last over a retirement of uncertain length.”
Research by the Thinking Ahead Institute found that, in 2023, 26% of all UK pension assets were in DC schemes. This was up from 17% just five years earlier, largely due to the rapid growth of DC master trusts.
In 2018, the institute reported that DC assets had exceeded DB assets across seven of the largest pension markets for the first time. The countries it covers include the UK, Canada, the US, Australia, Japan, the Netherlands, and Switzerland.
