Employees look beyond their salary when considering the benefits package for their job. There is a greater focus on the complete reward package, ensuring you can offer the right combination of benefits to attract and retain the best employees. The right pension benefit design will keep them motivated and ensure they have the right outcome upon retirement.

Our actuarial team have extensive experience as employee benefit consultants advising companies on the design and restructuring of their defined benefit (DB) and defined contribution (DC) pension arrangements.

We work with trustees to ensure all liabilities are under control while advising on all aspects of benefit design and future service benefit changes. This includes closure, reducing future accrual, salary capping, moving to a hybrid design, and switching from RPI to CPI. No matter what you need, our experienced team is ready to advise on all complex issues and offer specialist advice that is tailored to your benefit program.

Most employers have decided to close their final salary schemes to new entrants but many still allow existing members to continue to accrue benefits, perhaps on a reduced scale, or to introduce other forms of arrangement that better share risk between the employer and employees.

Some employers put this off due to the assumed costs and time involved to carry out benefit design, alongside possible increases in costs or benefits. However, it’s usually the opposite that’s found to be true.

Our wide range of independent benefit consultancy services include reviewing and helping to implement changes to existing pension plans, as well as recommending alternative arrangements.

Restructuring

We support with the restructure of your DB and DC pension arrangements.

Recommending

We recommend suitable risk benefits such as death in service and group income protection.

Advising

We advise on the design of employee benefits and contributions.

We can also offer advice on benefit design following a corporate transaction. Take a look at our Corporate Transactions page in our Finance Directors' Guide to Pensions.

Our client had a DB scheme that was closed to new members but still open to accrual for existing members.  Their objective was to try to keep it open to accrual but to contain risks and pcoket costs.  They had worked with a previous adviser and had identified a Career Average structure as the likely solution.

We worked with them to reconfirm their objectives and constraints and it became clear that the Career Average solution did not meet their criteria since it effectively addressed the one risk that the employer could control anyway – pensionable salary increases.  We also identified that, given the market conditions and increased funding deficit, that a more fundamental change would be required.

After extensive discussions with the employer, the following benefit structure was decided upon:

  • A reduction in the accrual rate from 1/60th to 1/80th (for future service)

  • A cap on pensionable earnings increases of 1% pa (for past and future service)

  • Closure of the scheme to accrual in 5 years’ time

This solution enabled the employer to be able to afford, and mitigate the risk of, continuing accrual for 5 years whilst giving members plenty of notice of the future closure.  The pensionable earnings cap reduced the past service deficit as well as the on-going future cost.

We then worked with the employer to agree this structure with the trustees and carry out a consultation exercise with the members.

Our client had a DB scheme that was closed to new members but still open to accrual for existing members.  At the previous funding valuation, a pensionable earnings cap had been put in place in response to the increased deficit and ongoing funding costs then revealed.

The latest valuation revealed further increases in the deficit and ongoing costs.  We worked with the employer to formulate the following benefit structure:

  • Closure of the scheme to future accrual

  • Ongoing pension provision via the existing DC arrangement with enhanced contribution rates

  • A mechanism that would allow members to transfer their DC pots into the DB scheme at retirement to be used to cover the tax-free lump sum

This allowed members the opportunity to retire with a core DB benefit and fully flexible benefits of a DC pension scheme or to maximise their DB benefit and tax-free lump sum.  It also allowed the employer to control its on-going pension costs and contained the DB risk.

We then worked with the employer to agree this structure with the employees’ union and pension scheme trustees and carry out a consultation exercise with the members.