Why have so many U.S. companies frozen their U.K. defined benefit plans?

Over the last two years, many Fortune 500 (and similar-sized U.S.) companies have taken real action to better control their defined benefit (DB) pensions risk. This has been particularly noticeable in the area of freezing U.K. plans to future accruals. I have seen this first hand in almost every sector, including energy, consumer goods, pharma, tech and aerospace.

After years of increasing and volatile costs plus additional layers of red tape, companies have made the decision to move to defined contribution (DC) benefits for all U.K. employees. These decisions have not been taken lightly – not least because they often affect thousands of employees at a time. However, the list of successfully executed freeze projects is ever increasing.

Why has there been an increase in activity?

Despite the diverse industries in which organizations operate and the differing impacts on their businesses of the COVID-19 pandemic, there have been some common reasons for the decision to freeze DB plans:

What are the other benefits of freezing a U.K. DB plan?

In addition to the more obvious benefits of reducing cost and risk as well as addressing equity issues, companies freezing their U.K. DB plans have found a number of other benefits:

So, if you have a U.K. DB plan still open to accruals and have not recently considered freezing it, we would suggest that now is the time to look into this. There are likely to be a number of reasons to move ahead, and you may find that a freeze has several other unexpected benefits.