Dramatic fall in final salary pensions

2004

The number of final salary pension schemes open to new members has fallen dramatically in the last two years, but the decline looks likely to continue at a slower rate, according to new research.

A survey of more than 1,800 British schemes by Mercer Human Resource Consulting has found that the proportion of companies with final salary schemes open to new employees has fallen from 56 per cent in 2002 to 38 per cent this year.

A further 12 per cent of firms said that they plan to close their final-salary scheme to new staff in the coming year.

Of those companies with open schemes, 39 per cent increased employer contributions last year or plan to next year, while 29 per cent have decided to increase employee contributions. Fifteen per cent have reduced benefits for future service or intend to do so

Peter Bowers, a partner at Mercer, said: "In the last two years there has been a dramatic fall in the number of final salary schemes open to new members."

"Final salary schemes are highly valued by employees and can help to differentiate companies when recruiting staff." But, he added: "In future, members’ benefits are likely to be lower and their contributions may be higher, to make schemes more affordable."

The survey also highlights the dramatic – and potentially explosive - differences between the private and public sectors. In the government sector, more than nine out of ten final salary schemes – whose liabilities must be met by the taxpayer - were still open to new members.

In contrast, only a quarter of firms in the insurance industry and one in five software design and development employers still offer such schemes to new staff.

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