DB running costs up 37%, survey finds

The latest annual survey by the Pensions and Lifetime Savings Association (PLSA) has found that costs for operating defined benefit (DB) schemes have increased by 37% in one year, up from £400 to £546 per member.

The increase was mainly due to rises in fund management and custody costs, which were up 32%. At smaller schemes – those with 5,000 members or fewer, the rise was even steeper at 63%. Unsurprisingly, the closure of private sector DB schemes continued, with only 4% open to new members and only 10% of DB schemes open to new members overall. PLSA chief executive, Joanne Segars, commented: “Our analysis highlights a continuing problem for DB schemes. Higher operating costs, especially for smaller schemes, combined with widening deficit levels mean DB schemes are under pressure more than ever before. We can’t ignore the resulting risk to members’ benefits for all but the most strongly funded schemes, and for these members the risk is they will lose 15-20% of their benefits.”

The PLSA survey found that DC schemes continue to grow on the back of automatic enrolment, with 1.8 million new members enrolled in the year to June 2016 at master trusts. Within DC schemes, the average employee contribution rate remains at 4.2% and employer contributions are 7.9%, while the average annual management charge is 0.4%.