(March 25, 2013) – Companies in the United Kingdom sunk £45 billion into their pension schemes in 2012-the largest amount since the Office of National Statistics began recording contribution data.
Last year’s total marks a more than 15% climb over 2011’s aggregate contributions of £39 billion. The overwhelming majority of this money went into defined benefit (DB) schemes, although the statistics office does not break down contribution data by specific benefit type.
This dramatic rise in contributions tracks inversely with another trend revealed by governmental data: a precipitous drop in DB members. In 2002, 26% of private sector employees were members of pension schemes; last year, that figure had dropped to 8%.
“Employers are paying more and more money into their DB schemes even though the number of employees still in them is getting smaller and smaller,” Mark Duke, a senior consultant at Towers Watson, commented on the data. “That these things are true at the same time underlines how the vast bulk of this money is being used to pay off deficits, not to promise new benefits.”
The portion of DB funds that were closed to new members in the UK rose to 87% last year, according to the National Association of Pension Funds’ (NAPF) annual report. This is a rapid increase from 81% in 2011 and 79% in 2010, the organization said. NAPF CEO Joanne Segars directly pointed to “the growing liabilities fuelled by quantitative easing” as a key factor fueling the closings.
The massive pension payments doled out likely did not improve the funding situation of many companies’ retirement schemes, according to Duke from Towers Watson, partly because of today’s very low interest rates: “With plans to repair deficits having been blown off course, employers and pension scheme trustees face challenging negotiations over what to do about this. More money spent shoring up pension benefits promised in the past can mean less money available for wages, dividends and investment in the business.”
See the raw data from the Office for National Statistics here.