Standard Life PLC, Edinburgh, is freezing its U.K. defined benefit plan in April 2016 to mitigate risk and increasing costs associated with running the pension fund in the future.
The insurer, which is the parent company of money manager Standard Life Investments, said in a statement that the changes will result in all U.K. employees having access to only a defined contribution plan. About 45% of the firm's employees are already enrolled in the DC plan, while the other 55% — who are currently in the DB fund — will have the opportunity to join the DC plan. Their existing DB benefits will be protected.
The pension fund has been closed to new members since 2004. The fund has about £3 billion ($4.8 billion) of assets as of Dec. 31, according to the latest group annual report. A spokesman for Standard Life said the pension fund has a surplus of £432 million.
The group has also enhanced its DC plan. Beginning April 16, 2016, the employer contribution will be 9% of salary, and Standard Life will additionally match employee contributions up to 5%. It will also enhance employee payments made by an additional 10%, meaning an employee choosing to contribute 5% would receive a contribution from Standard Life of 14.5%, according to the statement. Currently, employees receive a 9% employer contribution with no matching of employee contributions.
“The decision to propose a change to the defined benefit scheme has not been taken lightly, but we believe it is the right one,” said Sandy Begbie, chief operations officer at Standard Life, in the statement. “At the same time, we are proposing increased terms for the defined contribution scheme, which would be the scheme for all employees going forward.”
“The cost of providing pensions on a defined benefit basis is rising sharply so we're taking action now before the cost grows even further. It'll help us provide a competitive, sustainable company pension that's consistent for all of our people, and also help our business keep performing well in the future,” Mr. Begbie said.