AG Barr plans scheme closure to manage risk

The company began consulting with members on the closure of the DB scheme on January 20 this year. The consultation concluded on March 23.

Stuart Lorimer, finance director for AG Barr, said the company expects the scheme to close during the next financial year.

The main driver for the decision to close the scheme was one of risk management, coupled with providing equality across the employee base

Stuart Lorimer, AG Barr

“The main driver for the decision to close the scheme was one of risk management, coupled with providing equality across the employee base,” he said.

Lorimer added: “There will be a curtailment benefit, which will be disclosed in our accounts at the end of this current financial year ending January 2017.”

AG Barr recently took steps to curtail its DB deficit by establishing a Scottish limited partnership and long-term funding arrangement in 2014. However, last year it announced it had slipped from its £100,000 surplus to an £18.5m deficit.

Rate of scheme closures

Late last year the release of the Pensions Regulator’s Purple Book showed the rate of DB scheme closures had levelled off despite a continually difficult investment environment. However, with the end of contracting-out fast approaching and the associated increase in the costs of running a scheme, employers are likely to reconsider the position of their DB offering.

Lynda Whitney, partner at consultancy Aon Hewitt, said: “The end of contracting-out has definitely led people who are still open to future accrual to review their benefits. We probably have seen a small uptick of ones that are closing.”

The liabilities of closed schemes can still change due to shifting investment conditions, but Whitney said ceasing accrual increases the risk control for the employer and trustees.

“It’s a bit more of a known quantity once you close it. There is an endpoint and an endgame,” she said.

A 2015 survey by Aon Hewitt showed around half of clients intended to cut benefits in 2016 or soon after. Of those, 75 per cent were considering full closure of their DB scheme.

David Hickey, managing director of institutional advice at fiduciary manager SEI, said this was to be expected given the environment in which DB schemes were created.

He said: “When they were invented, people thought there was a job for life. People have become more fluid.”

Recruitment tool

However, Anne-Marie Winton, partner at law firm ARC Pensions Law, said the number of schemes closing seemed to be settling in recent years.

Winton said there could be a core of schemes where the employer keeps their DB provision open “for philosophical reasons or economic ones”.

She added it could still be in employers’ interests to use DB in sectors where competition for talent is stiff. “It used to be argued it was good for recruitment, good for retaining talent.”