UK - The number of firms reviewing their final salary schemes is increasing but most do not opt for closure, research by Watson Wyatt shows.
The consultant’s analysis of schemes at 219 organisations showed that less than a quarter decided to close their defined benefit provision to new members and offer a DC plan instead.
Watson Wyatt partner Colin Singer said: “There is a widely held perception that most companies are closing their final salary schemes to new employees and are switching to pure DC arrangements.
“While there are plenty of employers doing this, many others are looking at other ways of reducing the costs and risk of running a pension scheme, such as increasing member contribution rates, reducing the level of benefits or using alternative structures such as career average or cash balance plans.”
Watson Wyatt found that 59% of final salary schemes were reviewed in the past year – compared with only 55% over the five preceding years.
Of these, 55% made “no significant changes”, 32% closed the scheme to new members and introduced a new plan, and 10% continued to provide a final salary scheme but with a reduced level of benefits.
Only 2% chose to freeze their scheme, stopping future accrual for existing members, and 1% decided to offer members the choice of final salary and another plan.
For those firms that decided to move away from defined benefit schemes, 73% opted to change to DC provision – down from 97% in Watson’s 2002 survey.
Cash balance and career average schemes were found to be an increasingly popular option.
Watson found that 10% of firms with final salary schemes – including those with plans already closed to new members – had changed the rate of member contributions in the past year.
Among these organisations, the average member contribution had risen from 4% to 6%.
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