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Defined Benefit Pension schemes under increasing pressure

Sep 09


DB Pension schemes liabilities for deferred members have increased by 16% over the last 12 months because of falling bond yields. This is very worrying for anyone with a Defined benefit pension scheme.

How well a scheme can cope depends on how well-matched its investments are to sovereign bonds of appropriate duration. 

A Sovereign Annuity may come about by the DB scheme trustees making the decision to may compulsory buy out his or her pension entitlement under the scheme, partly or fully with a Sovereign Annuity. i.e. An annuity where the risk of default by a Sovereign Government bond whose bonds the insurer has invested in to back the annuity obligation, passes to the Pensioner rather than being held by a particular life company.

But for many schemes, deficits are likely to open up and increase in the coming months and years. So, it’s important we are all aware of the ‘Health’ of our defined benefit schemes, I’d suggest you should as the following questions:

  • If the scheme is in deficit? If it is how does the employer plan on dealing with the deficit?
  • Has a Section 50 ever been applied to the scheme’s pensioners?
  • How many active or deferred members are joined the scheme?

I think if you get the answers to the above questions, it will give you a good indication as to the ‘Health Of The Scheme’ and in turn give you peace of mind about your future pension entitlements under that Defined Pension Scheme.

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June 2024
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