By Mohamed Ali Bernat Scottish Life is to make a concerted effort to pick up business in the define...
By Mohamed Ali Bernat
Scottish Life is to make a concerted effort to pick up business in the defined benefit (DB) market in the New Year.
The group believes the added publicity and impetus stakeholder pensions are bringing to employers will make them stop to reconsider their pension priorities, especially at the small to medium end of the market.
Alasdair Buchanan, head of communications at Scottish Life, said a number of life offices have moved out of the defined benefit market leaving the remaining players with a larger slice of business to target.
He added: "Where you have a skilled, experienced workforce that you are trying to incentivise, having a final salary scheme can be seen as an additional lure for recruiting and retaining staff."
Final salary schemes are deemed attractive due to the low risk investment opportunity it provides employees. Buchanan said: "There is a lack of risk from the employees' perspective in that no matter what happens in the markets they receive a set amount. In a defined contribution scheme if the member retires when the markets have taken a down turn their final payout will be affected."
In addition the typical defined benefit scheme features higher employer contributions compared to the average money purchase scheme, he added.
Scottish Life believes that the market had been through its negative phase and that people's perception of running DB schemes has probably reached the bottom of the cycle.
Buchanan said: "A lot of the shakeout in the DB market has already taken place and employers who will have to have a stakeholder or approved pension scheme in place by October 2001 will need to review their arrangements."
Buchanan added that Paul Myners' recommendation to drop the minimum funding requirement would help ease cost concerns regarding DB schemes as the compulsion for companies to make up the shortfall on their schemes would be eased. Scottish Life now plans to position itself with intermediaries as a company committed to the DB market over the long term.
Scottish Life's confidence is bolstered by the fact that its new regular premiums into DB were 25% higher in the second quarter of 2000 than the same period a year earlier, giving the group its second-highest quarterly new regular premium since 1996.
Speaking earlier this year Doug Morrice, assistant general manager of marketing at Scottish Life, said the idea that low gilt returns dragging down equity rates would spell the death of final salary schemes was wrong.
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