More people to require pension annuities
Why? Because more than 40 per cent of UK defined benefit schemes (final salary) are likely to be closed to future accrual within the next five to 10 years. This means that more and more people will have to rely on a pension annuity instead. This 40% figure would be a staggering increase from current levels, as only 6 per cent of defined benefit schemes are currently closed to future accrual.
The proportion of defined benefit schemes open to new entrants is also expected to fall to 4 per cent over the same period. Currently 25 per cent of schemes are open to new entrants. Again, leading to more people requiring pension annuities.
The market is seeing an increased focus on defined contribution provision instead. More than 60 per cent of employers predict that employer contribution rates to defined contribution plans would increase in the next five to 10 years.
Defined contribution plans now make up 75 per cent of open work-based pension plans, and on average the plans provide employer contributions worth 9.5 per cent of salary in return for employee contributions of 5.2 per cent.
