Managing employee pension costs to meet developing challenges
Managing employee pension costs to meet developing challenges
30 Jun 2020
At a glance
COVID 19 has brought about challenging times for many businesses, and employers are having to react and reconsider their business plans
Many employers still providing defined benefit (DB) pensions are reviewing costs to ensure they remain affordable and the associated risks remain manageable
Current economic conditions, particularly low gilt yields, mean employers are having to pay significantly higher contributions to fund DB benefits currently being accrued
In addition, the amount employers are paying now under funding agreements may not be sufficient for their ultimate long-term funding target
There are many options for employers to move away from full DB benefits, including new risk sharing options like Collective Defined Contribution
How will your DB scheme look in the future?
What is the ultimate cost of DB benefits?
The contributions currently being paid into your pension scheme may not be sufficient.
Actions employers can take
- Assess how big your scheme (and associated risks) is likely to get with the current benefit design.
- Decide if contingency plans are needed to manage benefit cost or whether change is needed now.
- Consider your alternative benefit options, the extent of change you need to make and how you will communicate with employees in the current environment.
- Measure the cost of your preferred benefit structure on your long term funding target to understand the potential long term cost.
Benefit change: The XPS Process
Benefit design options
For further information, please get in touch with Vicky Mullins, or speak to your usual XPS Pensions contact.