Background It has long been our view that the Defined Benefits Scheme is inactive.
The establishment of new schemes has been a rare thing over the last few years.
The main explanation schemes remain is that formally winding up the scheme crystallises the deficit on the business and could then force the business into liquidation.
Schemes are therefore paid up or closed, meaning the financial planners continue to administer them retaining this lucrative business, but members ceased accruing benefits.
The Pensions Act 1995 was the first in a long line of deadly blows.
Simplification in April 2006 was another deadline at which many failed.
Investment Turmoil and adjustments to the valuation basis have weakened the last few stalwarts further.
There will be no coup de grace; these dying swans will continue: apparently gliding safely, but with much frantic leg work behind the scenes for many years to come.
Data supporting this take
In the winter of 2008 we noted some statistical evidence to confirm this view:
1. AON Consulting published results last August of a survey confirming only 17% of defined benefit schemes remain open to new members. This is usually the first step in the long slow process of closing a scheme and eventually winding up. 2. Watson Wyatt had also completed a similar survey in the preceding months and forecast that 40% of Defined benefit schemes would be closed for future accrual over the next ten years. Our take is this will be even quicker than that. This is generally the third significant step to wind up, the second being reductions in future accrual of benefits for existing members.
How does this concern your clients?
Once the scheme has been closed to new members and is no longer providing future benefits for existing members, the administrators or financial planners will generally start hiving off chunks of the scheme by moving deferred members out reducing future costs. This is the stage when offers of enhanced transfer values (in various forms) tend to be made.
Action points
We stand by our long held perspective that members should choose when they transfer their benefits, not wait until it suits the scheme. It is important to appreciate that under current rules, if the fund falls into the Pension Protection Fund the benefits due reduce and the transfer option ceases.
Our message as elite financial experts is get out while you can!

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