Defined BenefitJul 26 2018

DB scheme to shut doors to avoid contribution hike

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DB scheme to shut doors to avoid contribution hike

A plumbing sector defined benefit (DB) scheme is consulting on closing to future accrual to avoid a necessary increase in contributions to almost double the rate they are at now.

The Plumbing & Mechanical Services (UK) Industry Pension Scheme, has more than 35,000 members – of which 3,200 are active - and assets of £2bn.

According to calculations of the scheme actuary, the fund has enough money to cover the benefits members have already built up.

However, because future expected investment returns across all asset classes are deemed so low, the cost of providing new benefits has gone up significantly, the scheme said in a booklet sent to its 360 participating employers.

This means the contribution rates paid by employers and employees need to increase significantly, it added.

Employees’ contributions would need to rise from the current 3.75 per cent of salary to 6.8 per cent, while employers would see a hike from 7.5 per cent to 13.6 per cent.

If the scheme sponsors approve the plan, the proposed changes will come into effect at a date still to be determined, but only after 30 June 2019.

Since no new members will be able to join the scheme after its closure, employees will need to auto-enrol new workers into an alternative pension arrangement.

Several other DB schemes have closed to future accrual or are considering doing so.

British Airways closed its final salary plan to new members this year, which was also the decision made by Royal Mail.

Bentley Motors launched a consultation on taking similar measures in February.

The plumbing scheme consultation closes on 16 September 2018.

maria.espadinha@ft.com