LONDON — New research from Hewitt Associates, a global human resources consulting and outsourcing company, has shown that nearly 20% of the UK pension schemes surveyed had now closed to Defined Benefit (DB) accrual, with a potential doubling of that figure expected over the next year. The survey was of 154 Hewitt clients, ranging from FTSE 100 companies to public sector organisations, and with a wide range of pension schemes.

Jackie Daldorph, managing principal at Hewitt, said:

"The vast majority of pension schemes have now closed to new entrants, but the pace of closure to existing members is accelerating, with the number of "frozen plans" expected to double in the next 12 months. For companies now embarking on a plan freeze, the issue becomes how to do so, while still keeping the members, their unions, and trustee boards onside."

Freezing schemes by closing them to future accrual of defined benefits is one of a number of ways to change benefits.  Other means being considered by companies in the Hewitt survey included retaining a final salary scheme but capping growth in pensionable pay, or moving to a career average (CARE) scheme. For most organisations, the process of changing benefits typically involves having a clear understanding of the wider business objectives - and constraints - and then determining a design that best meets these, followed by consultation with trustees, members and unions on the changes.

Where more significant benefit changes are being proposed, such as freezing the plan, it is particularly important for the employer to have a well-planned strategy in place which is then backed up by effective execution. This view was emphasised by the Department for Work and Pensions in its recently issued guidance on conducting benefit reviews.

However, Hewitt advises that schemes should proceed with caution and avoid the temptation to try to short-cut the process.  Tony Baily, principal consultant at Hewitt, said:

"There are often good reasons for freezing plans. However, the recent wave of plan freezes potentially puts pressure on other companies simply to follow suit - without really understanding whether this best meets their business objectives and constraints.

"For some companies the driving factor to freeze is to achieve equality of terms between DB and Defined Contribution (DC) members; for others it might be one of risk management. Whatever the reason, it is important to have a solid business case to help the workforce or trustee board understand the reasons for change."

Tony Baily added:

"Our survey shows that while many plans are being frozen, employers have not altogether ruled out DB. Employers can often achieve significant risk and deficit reductions through alternative measures to simply moving to a DC scheme.  This may involve retaining a final salary scheme but capping growth in pensionable pay, or moving to a career average (CARE) approach. In some cases, this kind of approach may also be better received than freezing the plan."

About the survey
Hewitt surveyed 154 pension schemes during January 2010, across a mix of their client base. The 154 schemes were sponsored by 143 employers, the large majority of which were based in the private sector.

About Hewitt Associates 
For more than 65 years, Hewitt Associates (NYSE: HEW) has provided clients with best-in-class human resources consulting and outsourcing services. Hewitt consults with more than 3,000 large and mid-size companies around the globe to develop and implement HR business strategies covering retirement, financial and health management; compensation and total rewards; and performance, talent and change management. As a market leader in benefits administration, Hewitt delivers health care and retirement programmes to millions of participants and pensioners, on behalf of more than 300 organisations worldwide. In addition, more than 30 clients rely on Hewitt to provide a broader range of human resources business process outsourcing services to nearly a million client employees. Located in 33 countries, Hewitt employs approximately 23,000 associates. For more information, please visit www.hewitt.com.