Predictions for pensions professionals in 2010

A Towers Watson (Consultants) product story

Edited by the Employeebenefitstalk editorial team Jan 25, 2010

Watson Wyatt has predicted five key trends for pensions professionals during 2010.

These are: a continued trend towards closure of defined-benefit schemes to future accrual; growing interest in enhanced transfer value (ETV) exercises; higher contributions from scheme sponsors; a more interventionist Pensions Regulator; and more alternatives to pensions savings.

Watson Wyatt predicted closure of defined-benefit schemes to future accrual would take off in 2009, which it did.

John Ball, head of defined-benefits consulting at Watson Wyatt, said: 'We are now seeing a number of major companies seriously investigating ETV exercises, spurred on by the substantial fall in corporate bond yields over the year, which can make such exercises more attractive.

'As we have seen with closure to future accrual, there could be a domino effect once a few household-name companies undertake such an exercise.

'The second half of this year will be the time when the bigger deficits caused by the financial crisis start making a dent in employers' cash flows.

'This is a consequence of the time it takes for funding agreements relating to late 2008 and early 2009 valuations to be negotiated and implemented.

'The question is not whether contributions will rise but by how much, how quickly and how uniformly.

'We can expect the regulator to become more interventionist in 2010, not least in respect to sponsor/trustee negotiations around funding plans,' said Ball.

Employers may start looking for alternative routes to help employees' long-term savings ahead of the proposed restriction of higher-rate tax relief for pensions for those with income of more than GBP150,000 (and in some cases more than GBP130,000) in 2011.

'This may begin with higher earners but employer-sponsored non-pensions savings vehicles may then become more widely available for other employees,' finished Ball.