Visualise your scheme's demographic shift
Data analysis: Active members have continued to shrink, while deferred member liabilities have continued to rise, presenting a range of investment and governance challenges for UK defined benefit schemes.
Active members have continued to shrink as a proportion of overall scheme membership with the group now representing 29 per cent down from 32 per cent in 2010 figures from the Pension Protection Fund's 2013 Purple Book show (see graph below).
Pensioner members also continue to tick up, at 38 per cent in 2013 from 36 per cent in 2009, and this gradual demographic shift is changing the make-up and management of schemes.
All figures from editions of the PPF's Purple Book
Bob Scott, a partner at consultancy LCP, said: "The people who have the greatest interest in the scheme, particularly if it gets closed to accrual, is no longer the employees [it is] the pensioners."
This can reflect in the governance around the scheme, and change the "mindset" of the trustee board as pensioner representation grows, Scott added.
Last year, BA's Airways Pension Scheme extended voting rights to its dependant pensioners to increase their participation in the scheme, as its active membership shrunk.
This shift is compounded by the lack of employees wanting to be member-nominated trustees. Scott said: "We have certainly seen in recent years schemes struggling to get people from the active workforce who are prepared to be MNTs."
The proportion of schemes' pension promises has also changed, with deferred members now making up 32 per cent of overall liabilities, up five percentage points since 2010.
The drop in active members is also causing cashflow problems. Strathclyde Pension Fund has a long-term plan to cut its equity exposure and chase liquidity as its cashflow turns from positive to negative.
John Walbaum, partner at Hymans Robertson, said the problem comes if schemes have to become a "forced seller" of assets.
Instead, they could look to insure certain portions of their liabilities, as has been reflected in the recent swathe of pensioner buy-ins.
Or schemes could take income out of their equity holdings rather than reinvesting it, though this does impact on returns if income is not reinvested.
In March, Havering Pension Fund discussed creating a £2m buffer to pay benefits, funded by equity, property and bond holdings.
Schemes are hungry for yield to fund benefits, given the ongoing demographic shift. "That is one of the reasons why we are seeing quite a lot of focus on strategies that are producing higher levels of income," said Walbaum.