Scheme closure

An increasing number of companies have closed their defined benefit (DB) occupational pension scheme to the accrual of future benefits and opened up a new defined contribution (DC) scheme instead for future service benefits.

Closing a scheme to future accrual of benefits is often not straightforward, and sponsoring employers and trustees will need to take into account a number of considerations before proceeding.

Where a closure proposal requires trustee consent, the trustees will need to be convinced that the employer has a good business case for closure before agreeing to the proposal. Employers should be prepared to provide evidence of their business case and to explain the financial and business impact for them if the scheme is not closed. The employer may also need to explain whether it considered any other options for reducing the costs and risks of the scheme falling short of full closure and, if so, why it discounted them.

Trustees may also look to obtain some advantage for members in return for agreeing to closure such as additional funding or security for the scheme.