Nationwide Building Society has announced that it will close its defined benefit (DB) pension scheme to future accrual on 31 March 2021.

The move has been agreed following a consultation with staff unions and employees, and will see affected employees moved to the Nationwide Group Personal Pension Plan (GPP) for future pension savings.

From from 1 April 2021, members will move from an active to deferred status, with future indexation of deferred pensions before retirement to be measured by reference to the Consumer Price Index (CPI).

The society clarified that as CPI is lower than previous assumptions, which were based on retail price index (RPI) and pay growth, a gain of £164m has been recognised as a past service credit for the year ended 4 April 2020.

All affected employees who were active members of the fund on 31 March 2021, or who were active members at the point they were made redundant on or after 18 September 2019, will also receive a one-off payment in the form of cash, or as a contribution to their pension.

A further cost of £60m has been recognised within the group's annual report to allow for these payments.

The DB scheme surplus has risen to £294m, compared to a deficit of £105m in April 2019, due, in part, to the aforementioned £164m gain following the closure of the scheme to future accrual.

The scheme however, has also seen a £141m gain relating to the return on assets greater than the discount rate over the past year, which it attributed to positive increases in government bonds.

Though this was partially offset by a deterioration in the value of certain assets due to market volatility, stemming from the current crisis, with 2019 having seen more than double this growth (£370m).

In addition, Nationwide reported a £54m actuarial gain on its DB obligations, stating that this was due to an experience gain of £117m, which was partially offset by a £34m loss from changes in financial assumptions, and a further £29m loss after the scheme updated to the latest industry standard actuarial model.

The group’s retirement benefit obligations also include £8m in relation to unfunded legacy DB arrangements.

The building society made employer contributions of £127m over the past year, with deficit reduction contributions making up £61m of these.

The society and trustee are currently negotiating a new schedule of contributions and deficit recovery plan, expected to be agreed later this year, whilst the 31 March 2019 triennial valuation for the scheme is still ongoing.

Based upon previous schedules, agreed as part of the 31 March 2016 triennial valuation , expected contributions for the year ending 4 April 2021 would be double the current rate, at around £122m.

The news comes as the group reports a 40 per cent fall in profits, after taking a £101m hit amid the Covid-19 crisis.

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