Relevant benefit accrual meaning

This Practice Note Provides practical guidance for trustees, as well as sponsoring employers, on operating a defined benefit (DB) pension scheme that has been closed to future accrual, ie with no ‘active’ members accruing pensionable service in the scheme. It does not address the act of closing itself, nor the factors considered in reaching a decision to run a closed scheme rather than proceed to wind-up. It likewise excludes the steps involved in winding up a scheme or managing a scheme in preparation for entry to the Pension Protection Fund (PPF). For details on these topics, refer to the following Practice Notes: Closing a pension scheme to future accrual—trustee considerations Closing a pension scheme to future accrual—employer considerations Trustee decisions and the Pension Protection Fund Winding up a defined benefit (DB) occupational pension scheme Often, the initial move when closing is (though not always) to shut to new members while allowing existing members to continue accruing benefits. Although not...

THIS PRACTICE NOTE APPLIES TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES Numerous employers running defined benefit (DB) occupational pension schemes have opted to halt future accrual, substituting them with a defined contribution (DC) solution, often — though not invariably — by way of a group personal pension (GPP) arrangement. At times, the impetus for such a shift follows the acquisition of the employer(s) by a new owner keen to curb future pension expenditure and/or to standardise pension provision across the corporate group that the relevant employer(s) has joined. In other situations, the driver for change arises in the ordinary course of the employer(s)’ business operations and is typically propelled by cost pressures and affordability. In any case, a proposal to close a DB scheme to future accrual will generally be regarded as a deterioration in the benefits package for the employees concerned...

Employers may seek to reshape a defined benefit pension scheme for several reasons, including keeping the scheme aligned with recent legislative and case law changes, aiming to harmonise pension provision across the relevant corporate group, and seeking to control or reduce future pension spend. Types of scheme restructuring Typical approaches to restructuring defined benefit arrangements include: adjusting the scheme's accrual rate for future service (eg from 1/60th of final salary per year to 1/80th) shifting from final salary to career average accrual rates running incentive exercises (eg enhanced transfer offers) closing to new joiners ending future accrual (with or without keeping a link to final salary) consolidating schemes buying out members' benefits For more information, see: Pension scheme incentive exercises Changing from final salary to career average accrual rates Scheme closure—overview Pension scheme mergers—considerations for employers and trustees De-risking—pension buy-outs and buy-ins Preserving a final salary link—what does...