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Pension closures: Half of final salary schemes to close by 2012

18 August 2009 / by Rebecca Sargent

Half of the UK companies offering defined benefit/final salary pension schemes are expecting to close them to all employees by 2012, research from consulting firm Watson Wyatt has revealed.

According to the survey of employers, more than one million employees who are currently saving for retirement through defined benefit pensions, may have to rely instead on less reliable defined contributions pension schemes.

At present, nine per cent of employers offering final salary pension schemes have already closed them to future accrual by existing members, although 50 per cent think they will be in that situation in three years.

Commenting, Rash Bhabra, head of corporate consulting at Watson Wyatt said: "More and more employers are taking a long, hard look at the risks they run through their pension schemes and saying 'enough is enough'.

"Companies who were delaying a decision on closing their schemes to existing members until others have stuck their heads above the parapet are now ready to act."

Those who have been in defined benefit pension schemes up until now will have been protected by the recent stock market volatility that has seen pension deficits grow. However, moving to defined contribution pension schemes would mean exposure to this risk.

Nevertheless the closures are inevitable given the economic climate, Rash Bahbra explains: "When employers are cutting jobs and freezing pay, pension arrangements will inevitably be put under the microscope.

"The more they have to pay to shore up pension promises made in the past, the less money there is to pay for new pension promises going forward.

"Directors will not want to explain to shareholders why they are off the pace when it comes to emulating the pension savings others have achieved so the recent surge of scheme closures could easily become an epidemic."

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