A survey of clients by Watson Wyatt found that the impact of the credit crunch meant that over 95% had seen their funding position worsen.
In addition, two out of three DB schemes expect employer contributions to rise after their next valuation.
The financial turmoil has also encouraged more frequent monitoring of liability and asset positions. Watson’s survey found around a third of respondents saying they are monitoring more regularly and a further 25% who say they expect to do so over the coming year.
However, in spite of the downturn, trustees’ ratings of their employer covenant remain high, with 81% rating their employer covenant as strong or very strong, compared to 83% a year ago.
John Ball, head of DB consulting at Watson Wyatt, added a note of caution to this last figure: “[Trustees’] confidence has shown signs of waning recently, with a distinct shift from those describing the employer covenant as ‘very strong’ to describing it as ‘strong’.”
He added: “How trustees view the employer covenant will be crucial during upcoming negotiations over contributions.
“Trustees know they need more money, companies know they need to keep control of their cash flows; there are going to be some difficult discussions.”
For defined contribution schemes, Watson Wyatt’s survey of 160 company and trustee representatives found that the main priority has been communication with scheme members, particularly in relation to investments and investment options.
Fifteen per cent of respondents said they had already increased member communications, with an additional 42% expecting to increase them over the coming year.
In other findings from the survey, over 40% of DB schemes expect to close to new entrants within the next three years.
Of those DB schemes already closed to new entrants but open to future accrual for existing members, around 25% expect to close to future accrual within three years.
David Rowley
