Press Releases

UK - July 2, 2008 - Results from the Office for National Statistics' Occupational Pension Schemes Survey, published today, show that in 2007:

• 2.7 million non-government employees were accruing new defined benefit pensions. The number doing so in 2006 has also been revised down from 3.4 million to 3.0 million.
• Less than half of these (1.3 million) worked for employers who still offer defined benefit pensions to new staff. So only around one in 15 non-government jobs would have come with a defined benefit pension if it were vacant.
• The number of non-government employees in open defined benefit schemes had fallen beneath the level which the Pensions Commission originally hoped might be a long-term floor.

Commenting on the figures, John Ball, head of UK Defined Benefit Consulting at Watson Wyatt, said:

“In 2004, the Pensions Commission thought the decline in defined benefit provision might never get this bad. In fact, it has already got worse. These figures are already a year out of date and more employers have closed their schemes in that time.

“Defined benefit pensions have not died out completely, but the companies sticking with them are increasingly few and far between. Most have decided that the costs are simply too big and too unpredictable. Every time another company overhauls its retirement benefits, a few more employees cast envious glances towards the public sector.

“Employers have far more former employees than current employees in their defined benefit schemes. As the link between the pension scheme and the company’s current operations grows weaker, company directors are increasingly focussed on settling the pension liabilities that their predecessors took on.”

Notes to Editors

Membership figures
We have used the term “non-government” to refer to schemes which the ONS labels as “private sector”. This is because the ONS explains that: “For the purposes of the survey, private sector schemes include schemes which cover employment in some public sector areas such as the Bank of England, the BBC, Transport for London, universities and the Post Office, as well as schemes where there is an element of a government guarantee.” (Occupational Pension Schemes Survey 2006, p3)

The number of active members – ie current employees accruing new benefits – in these non-government defined benefit pension schemes has fallen as follows:

Source: various editions of the Occupational Pension Schemes Survey. Surveys before 2006 were published by the Government Actuary’s Department.

How expectations have changed
The number of active members in open schemes indicates roughly what the long-term membership level would be if no further employers closed their schemes (ignoring the extent to which those employers with open defined benefit schemes might employ more people or fewer people in future than they do now).

Modelling assumptions used in the Pensions Commission’s First Report, published in October 2004, implied “a long-term floor of perhaps 1.6-1.8 million active members” in private sector defined benefit schemes, though the Commission stressed that these figures were “highly uncertain” (p85). A year later, it said that “a much lower figure now looks likely” (Second Report, p48).

Today’s figures suggest that the second conclusion is correct. The number of active members in open schemes has fallen below what was hoped to be a long-term floor less than four years ago.

Employee numbers
Labour Market Statistics reports that there were just under 25.2 million employees in Q2 2007, of which 5.5 million worked for central or local government. The 1.3 million active members of open DB schemes therefore represents around one in 15 non-government employees. (Strictly, the proportion of jobs that would come with a defined benefit pension is lower as some employees will have more than one job. In practice, jobs in some sectors will become vacant more frequently than others and it should not be assumed that this is the proportion of current vacancies with defined benefit pensions.)

Contributions
The ONS reports that average employer contribution to open defined benefit schemes were 15.0 per cent, while average employer contributions to closed defined benefit schemes were 16.1 per cent. These figures exclude lump sum payments aimed at reducing deficits. Average employer contributions to open occupational defined contribution schemes were 6.4 per cent.

For further information please contact:

Bruce Wraight
Head of Public Relations, Europe
Watson Wyatt
+44 (0) 1737 273370
+44 (0) 7771 765154
bruce.wraight@watsonwyatt.com

Visit Watson Wyatt's online press office: www.watsonwyatt.com/europe/news/journalists.

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Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm’s global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,000 associates in 32 countries and is located on the web at www.watsonwyatt.com.