UK final salary contribution rates may have to go up by 2% or more to keep up with increasing life expectancy, according to Bacon & Woodrow.
The investment consultant said final salary schemes’ falling market yields and improving mortality rates could make DB schemes unaffordable for some companies.
B&W head of benefits research Brian Wilson said: “All schemes, at their next actuarial valuation, would need to review their mortality assumptions to see whether they remain appropriate.
“The cost of providing benefits already accrued will have increased – there is nothing they can do about that – and it will be more expensive to provide benefits for future service.”
Wilson noted that there were other options to closing DB schemes for trustees. He said that scheme providers could either pay the extra costs, increase the age of retirement or reduce the amount of pensions they pay.
B&W pointed out that logically the long-term answer would be to raise the age of retirement – a move it says the government appears to be considering.
Wilson also said that DC scheme members might need to take independent advice to avoid inferior pensions on retirement.
Wilson said: “This advice most probably will come under the Financial Services Act and the trustees would probably not be able to give them advice. Employees in DC schemes would need to get their own independent financial advice. Probably not enough of them are doing so already.”
By Jonathan Stapleton
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