PensionsDec 3 2014

DC membership now outstrips DB for ‘first time’: Napf

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Active membership of defined contribution schemes has outstripped the active membership of private sector defined benefit schemes for the “first time” in 40 years, according to the National Association of Pension Funds.

The decline of DB has been well documented as schemes have gradually closed to new members and new contributions from existing members.

Napf’s 40th annual survey showed that trend continuing, with 39 per cent of DB schemes fully closed, compared to 34 per cent last year.

On average, trust-based DC schemes that responded to the survey had 15,000 active members, compared to just 4,500 active members in the average DB scheme.

Some 250 Napf members responded to the survey, representing 840 pension schemes.

This year just half of all DB schemes are open to future accrual among private and ‘other public sector’ schemes, rising to 53 per cent when only private sector schemes are taken into account.

Only 8 per cent of private sector DB schemes were still open to new members in 2014, compared to 12 per cent in 2013.

The average pension paid to DB scheme members by respondents was £8,071, up slightly on 2013 from £8,010.

Meanwhile, the average contribution rate for DC members continued its descent, now standing at 11.7 per cent, compared to 12.5 per cent in 2013.

This consisted of 7.6 per cent from the employer and 4.1 per cent from the employee. Napf attributed this fall in contributions to the “sheer volume” of new savers joining schemes as a result of auto-enrolment, where contributions are started at the minimum rate.

Some 33 per cent of employees received the minimum employer contribution and 43 per cent of employees received the maximum employer contribution.

Graham Vidler, director of external affairs at Napf, said: “This year’s survey allows us to take stock of the major changes that we’ve seen in UK workplace pensions in the last 40 years. The obvious trend is the move from defined benefit to defined contribution.”

He added that despite the trend of DB schemes closing to new entrants, they are still “very much” the dominant investment force in UK workplace pensions, with the research showing an average £2.3bn of assets in private sector DB pension schemes, compared to £250m in DC pensions schemes.

However, Mr Vidler noted that the number of active members in DB and DC is a very different story. “This shift is not altogether unexpected as most Napf members have embraced automatic enrolment.

“It does, however, underline the rapid growth in the number of savers into workplace pensions that automatic enrolment has generated. We expect to see a further major shift in this area in our 2015 survey results.”

ruth.gillbe@ft.com