(August 27, 2009) – In a move that only highlights an ongoing trend, Britian’s financial regulator, the Financial Services Authority (FSA), has shut its defined benefit pension scheme to new contributions.
The independent British regulator, which oversees financial services companies, has told 500 of its employees that they will not be allowed to keep paying into the scheme, and instead will be directed towards a defined contribution pension system. While the scheme has been closed to new members since 1998, and while employees will still collect the benefits they have thus far accrued, the final payments into the fund will be made in March, 2010.
While the FSA is small fish compared to the giants of the British pension world, it signifies a larger trend among British companies.
“It’s ‘when’ rather than ‘if’ with regards to the closing of British final salary schemes,” Sally Bridgeland, CEO of oil-giant BP’s pension scheme. The $TK billion fund will itself close to new members in April, 2010.
Others who have closed their schemes to new members in the past year include Barclays and Morrison’s, a British supermarket. IBM has also noted that it is considering such a move.
These moves signify a greater willingness in Britain for employees to support themselves in retirement – a system similar to that of the United States and its ubiquitous 401(k) plans. According to many, this is a result of continuing funding problems and longevity risk. In conjunction with the shutting of these plans, longevity swaps – where insurance funds take over the liabilities of pensioners after a certain age – and pension buyouts – where insurers provide annuity-like products to topped-up pension schemes – are becoming increasingly accepted and common.
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