NAPF annual pensions survey 2008 - stability now, but further change on the horizon

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Wednesday, 08, Oct 2008 12:00

The 34th National Association of Pension Funds (NAPF) Annual Survey1 has revealed a picture of continuity and change in UK workplace pension provision in 2008. The comprehensive survey covering 502 pension schemes with over £460 billion in assets has been launched this morning at the NAPF’s Annual Conference in Glasgow.

DB scheme closures: The closure of final salary schemes in the private sector has continued to slow. 28% of defined benefit (DB) schemes, with over 2 million members, remain open – a drop of 3% compared to 2007. The rate of closure has remained relatively stable for the past two years after the sharp increase in closures between 2002 and 2006.

Future changes: Despite this stability, further change appears to be on the horizon. The survey reveals that some existing open DB schemes are considering switching to defined contribution (21%) or reducing costs or risks (10%).

Running costs increased: A further driver of scheme closures is scheme running costs. Overall running costs have increased. Schemes are spending 74% more on levies, 20% more on fund management and 19% more on fees to advisers.

Levelling down: One in five schemes (19%) say they will level down, either by lowering contributions or switching new employees to Personal Accounts from 2012.

Defined Contribution schemes: The 2008 survey shows the DC pensions landscape is also changing. Average contributions stood at 11%, with 7% from the employer – more than twice the statutory employer minimum from 2012. Meanwhile the average sizes of savers’ funds stands at over £13,500.

NAPF Chief Executive, Joanne Segars, said:

“Our survey shows that, despite market turmoil, employer commitment to pensions remains strong. Workplace pensions continue to provide a valuable source of income for millions of working people now and in the future.

“However, there is still much outside pressure on pension schemes. Government, regulators and standard setters must take action to ensure the regulatory framework encourages good quality pension provision and continued employer commitment.

“This must include ensuring that the impact of Personal Accounts and auto-enrolment in 2012 does not place unnecessary and unwelcome additional administrative costs on schemes and that the Government sticks to its commitment to deliver a lighter touch regulatory regime for workplace pensions.”

KEY FINDINGS

Open Defined Benefit Schemes

With 28% of defined benefit (DB) schemes in the private sector remaining open to new members, the rate of closure remains gradual (see table 1).

Table 1: Percentage % of private sector defined benefit salary schemes open to new entrants

2002 - 70%

2006 - 33%

2007 - 31%

2008 - 28%

Source – NAPF Annual Surveys

Despite this stability, further change could be on the horizon. The survey reveals that some existing open schemes are considering switching to DC (21%) and 10% said they would retain DB provision but would reduce costs or risks.

The introduction of auto-enrolment from 2012 will be a further factor in changing the shape of pension provision. Whilst two-thirds (67%) of schemes said that they would use their current contribution rate after the reforms, one in five (19%) respondents said they would ‘level down’ either by lowering contributions or switching new employees to Personal Accounts from 2012.

Pension Scheme Running Costs Continue To Increase

One of the factors affecting the future of schemes could be the rising costs of running schemes. The sharpest increase is in the levies that schemes have to pay (74%) as outlined in Table 2.

Table 2: Scheme running costs (cash values)

Base: 258 schemes in 2008

Contribution Rates in DC schemes top 11%

Employer contribution rates remain stable at an average of 7% (median), over twice the minimum employer contribution that will be require by the 2012 reforms. Employee contributions have increased slightly from 4% in 2007 to 4.3% this year.

Majority of Schemes Have Not Considered Buyout

One development that has gained in prominence over the past 12 months has been buyouts.

The survey showed that 5% of pension schemes had obtained a full buyout quote and 10% had obtained a partial quote. Three-quarters (76%) of schemes had not obtained either a full or partial buyout quote and 60% had not considered either option.

Diversification in Asset Allocation Continues

UK pension funds continue to diversify their assets. In 2006, 28.2% of overall pension fund assets were in UK equity. In 2008, this figure was 21.1%. There has been a shift into fixed interest assets. 31.2% of overall pension fund assets were in fixed interest asset classes up from 27.7% in 2006.

ENDS

Notes to Editors

1. The survey received responses from 327 NAPF fund members, though not all responded to every question. Nearly all respondents operate defined benefit schemes. Most also operate defined contribution schemes. 502 schemes were covered by the survey.

Assets in respondents’ defined benefit schemes total £454 billion. Assets in defined contribution schemes total £9.5 billion.

7.1 million people have pension entitlements in the defined benefit schemes operated by respondents. Around 650,000 people are saving in their defined contribution schemes.

The 34th National Association of Pension Funds’ Annual Survey of UK Pension Funds 2008 can be purchased via www.napf.co.uk/Publications/Index.cfm. The Annual Survey is under NAPF copyright and the NAPF does not permit the onward access or distribution in whole or in part to others for any purpose whatsoever.

About the National Association of Pension Funds

The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,200 pension schemes with some 15 million members and assets of around £800 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.

Journalists requiring further information and a media copy of the report, please contact

Mark Brooks 020 7808 1312 mark.brooks@napf.co.uk 07917 506683

Ruth Wharram 020 7808 1345 ruth.wharram@napf.co.uk 07825 171446