Most people prefer to be masters of their own destiny. One exception is when it comes to their pensions. Defined benefit schemes shoulder employers with the risks of providing for employees’ retirements. When investment performance suffers, sponsors must stump up funds to cover any shortfalls. Defined contribution schemes, by contrast, put employees in charge of their savings, including the risk that returns may fall short of expectations.
A new report from the UK pensions regulator illustrates the extent to which companies are cutting back on defined benefit schemes (not a uniquely British phenomenon). Less than a third of existing schemes in the UK remain open to new members. What’s more, a fifth of schemes no longer allow existing members to accrue new years of service.
Defined contribution schemes generally feature smaller contributions from companies—a good thing for cash-strapped firms but less so for scheme members. After all, as The Economist notes, “if less goes into the pot, less will come out.”