LONDON - Only 3% of U.K. employers - mostly in banking and pharmaceutical sectors - switched to a defined contribution plan last year, contrary to popular perception of a wholesale shift, according to the National Association of Pension Funds' annual survey.
In contrast, 1% of schemes (five employers) replaced money purchase plans with defined benefit plans. "The final-salary scheme is not dead," said NAPF Director General Ann Robinson.
Employer contribution rates are much lower for defined contribution plans: while long-term costs of a typical final-salary scheme is 13% of pay, the average for money purchase schemes is 5.6%. (Current employer contribution rates for defined benefit plans average 8%, given the influence of contribution holidays.)
The survey also revealed:
Specialist management and indexation is on the rise among U.K. pension funds. Forty percent of (British pounds) 151 million ($244 million) in pension assets surveyed were invested with specialist managers. Meanwhile, 34% of corporate plans index part of their assets. For those that index, on average 28.4% of assets are indexed.
Most managers (57%) are not told what asset allocation policy to use although 87% of corporate funds use performance targets.
One-quarter of corporate plans and 71% of public plans invest in private equity. Of those funds that do, 0.8% of assets are invested in the asset class.
U.K. funds are moving away from investing in employer stock. Only 16% of corporate plans are self-invested, down from 31% in 1990.
Securities-lending remains at low levels. For corporate plans, 14% lend U.K. equities; 11%, overseas equities; 10% U.K. bonds; and 8% overseas bonds.
Figures are roughly 12 percentage points higher for public funds, but that might reflect the higher average size of public funds surveyed: 50% of 581 corporate funds surveyed had less than (British pounds) 100 million in assets, while only one of 61 public funds surveyed was that small.
Only 30% of managers for corporate schemes use derivatives, although another 39% are permitted to use derivatives. In comparison, 50% of managers for public funds use derivatives with another 25% having permission to do so.
Corporate schemes pay performance-related fees to 15% of balanced managers, and 11% of specialist managers.
Trustees are taking a more active role in corporate governance: 46% of trustees are involved in setting voting policy, compared with 28% in 1995. However money managers are responsible for implementing the policy for 96% of private schemes.
Twenty-nine percent of private pension plans - vs. 78% of public plans -have adopted voting policies.
Where policies do exist, 56% of overseas equities and 82% of U.K. equities are covered by voting policies for corporate plans.