Amid the wider trend of scheme closures, over-50s specialist Saga has vowed to keep its defined benefit plan open to members, revealing details of a 10-year deficit recovery plan.
The commencement last month of retailer Tesco’s consultation with employees on the closure of its DB scheme marked a reversal of an earlier pledge by the employer to keep its DB scheme open.
However, some UK corporates are pressing on with their DB provision despite persisting low yields and increasing longevity driving up deficits.
Saga, a specialist insurer and holiday company catering for the over-50s, announced in its annual results last week a 10-year recovery plan for its growing deficit.
The company has two closed DB schemes – Nestor Healthcare Group Retirement Benefits Scheme and Healthcall Group Limited Pension Scheme, which Saga adopted through acquisitions – and a career average plan.
After the deficit across the group’s three DB schemes deteriorated £30.8m over the year, rising to £55.1m as at January 31 2015, it agreed to make an additional payment of £2m into the scheme on an annual basis over the next 10 years. The first payment was made in February.
With the company’s business objectives firmly rooted in the later-life demographic, Paul Green, director of communications at Saga and a member-nominated trustee of the pension scheme, was defiant about the continued provision of DB benefits to the workforce on a career average basis.
“I don’t think the company would have signed up to a 10-year program if there was a plan to change benefits,” said Green.
“We are committed to providing pensions for our staff, and unlike many other corporations it’s open to new members,” he added.
Green said a “sizeable proportion” of the company’s 5,000-strong workforce were members of the scheme, and those who had chosen not to be had access to a stakeholder arrangement.
Matthew Harrison, managing director at covenant specialist Lincoln Pensions, said Saga’s strategic focus on the older demographic means it might be more paternalistic in its approach to employee benefit provision.
Harrison said the recovery plan for the scheme was crucial to managing the scale of the deficit and therefore risk to the employer.
We are committed to providing pensions for our staff, and unlike many other corporations it’s open to new members
Paul Green, Saga
“In Saga’s case [the deficit] is material, but it’s less significant in the context of the earnings or the balance sheet of the company,” he added.
Driver for change
However, Charles Cowling, director at consultancy JLT Employee Benefits, said paying down the deficit did not remove the increasing costs of providing DB benefits.
He said deficits can be used by employers as a “good excuse” to move employees across into a cheaper defined contribution benefit structure.
But Cowling added longer term, DC benefits will be exposed as inadequate.
“DC is going to come around and hit us,” said Cowling. “The pendulum will swing back eventually and people will demand a better way to finance retirement.”
He added that DB could survive if schemes were committed and put “sensible benefits” in place.
