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Only 9% of DB plan sponsors surveyed have already closed their plans to future accrual by existing members, but 50% think they will be in this position by 2012. Further, most companies (75%) have already closed their schemes to new entrants, 48% of which expect to close it to existing members within three years, with another 28% expecting to keep their plan open to existing members but on less generous terms. Twenty-five percent do not expect to make any changes.
“More and more employers are taking a long, hard look at the risks they run through their pension schemes and saying ‘enough is enough,’” says Rash Bhabra, head of corporate consulting at Watson Wyatt. “Companies who were delaying a decision on closing their schemes to existing members until others had stuck their heads above the parapet are now ready to act. There is a sense of inevitability that what was once seen as the nuclear option is starting to become the norm.”
“When defined benefit schemes began to close to new entrants, existing members thought they would be unaffected as long as they stayed with the same employer,” adds Bhabra. “However, when times are tough, it is hard to justify keeping more generous pension arrangements for a dwindling number of long-serving staff. Those still in defined benefit schemes have been protected from the recent stock market downturn but even they are now going to have to live in a world where it is not the employer’s problem if the money that was put aside will not buy the pension it was supposed to.”
Watson Wyatt believes there are three main factors driving the closure to future accrual:
• the economic environment;
• new pension scheme valuation results; and
• the fact that these trends can be self-perpetuating.
Bhabra explains that the current era of cost-cutting is putting pension plans in the spotlight and making it easier to consider drastic measures to improve the bottom line. This accelerates when companies compare themselves to their competition.
“Directors will not want to explain to shareholders why they are off the pace when it comes to emulating the pension savings others have achieved so the recent surge of scheme closures could easily become an epidemic,” he says.
Case in point: Barclays, Dairy Crest, Fujitsu, IBM and Morrisons have all closed or announced plans to close their DB plans, and the country’s Royal Mail pension plan may also be closed due to an enormous deficit.
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BNY Mellon to acquire Insight Investment
The Bank of New York Mellon has announced plans to acquire Insight Investment Management from Lloyds Banking Group in a deal worth £235 million (C$424 million).
The acquisition will leave BNY Mellon with more than US$1 trillion in assets under management and is expected to close in the fourth quarter of 2009.
London-based Insight Investment specializes in liability-driven investment solutions, active fixed income and alternatives. Clients include some of the U.K.’s largest pension plans, corporations, and insurance companies.
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