Only 8 per cent of employers offer defined benefit pension schemes

Only 8 per cent of private sector employers still offer defined benefit (DB) pension schemes to new employees, while only 14 per cent of private and 'other public sector' employers offer the scheme to new members.

The decline is due to the fact the scheme takes all of the investment risk and is obliged to provide a pre-defined income, as opposed to defined contribution (DC) schemes, which are dependent on the amount of money that has been invested by the saver.

The government's auto-enrolment pension scheme has also created a spike in the numbers of members in DC schemes.

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 continued: "The decline of defined benefit has been well documented as schemes have gradually closed to new members and new contributions from existing members. This year's survey shows that trend continuing with 39 per cent of DB schemes fully closed compared to 34 per cent last year.

"For the first time, active membership of DC schemes now outstrips the active membership of private sector DB schemes. On average, trust-based DC schemes who responded to our survey had 15,000 active members, compared to just 4,500 active members in the average DB scheme.

Vidler added: "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

Shifting pension's landscape

The government's recent overhaul of how pension savings can be accessed was also put into context by the study, which has been conducted annually for 40 years since 1975 - less than the average working lifetime.

Many have said that the Chancellor George Osborne's changes to pensions, though widely welcomed and highly attractive, will not stand the test of time and only benefit those entering into retirement in the near future.

With future governments coming in with their own policies, there is no guarantee that pensions will remain as attractive as they currently are.

Vidler commented: "In 40 years - less than a working lifetime - we've seen massive changes in the pension landscape. Two-tier state pensions have been introduced, radically reformed and then abolished. Contracting out was in - and now is out. Scheme membership was compulsory, then voluntary and now automatic. Stakeholder pensions and annuities both became a significant part of mass market retirement provision and both are now in decline.

"The good news is that at the end of 40 years, participation in workplace pensions is up, quality is improving and charges continue to fall. This gives us an opportunity to build a long-term pension settlement for the benefit of savers across the UK. The best way to seize that opportunity is through the creation of an Independent Retirement Savings Commission - charged with the task to ensure future pensions policy is subject to thorough and impartial scrutiny."

Binyamin Ali is assistant editor of Private Client Adviser

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