Existing final salary plan members could lose out

Employers will be tempted to close final salary pension schemes to existing
members as well as new members to curb the increasing costs of provision.

This is the conclusion of a study by Mercer Human Resource Consulting, which
finds that costs for a typical final salary scheme, which has been closed to
new members, are expected to rise by 25 per cent over the next five years.

This contrasts with an increase of 30 per cent for final salary schemes
which remain open to all staff.

"Employers still need to take some hard decisions on cutting pension
costs," said Peter Bowers, European partner at Mercer.

"The majority of companies have already closed their final salary
schemes to new members, but this was the easy step. The next big issue is how
to deal with the current membership."

Mercer predicts there will be a new wave of pension reviews, where final
salary schemes are either adapted to reduce employer risks or closed to
existing members.

"Closing a scheme to new entrants is a relatively easy decision to
take. But employers are fooling themselves if they think this alone will solve
the problem of rising pension costs," said Bowers. "Unless companies
have a particularly high staff turnover, such a decision will not significantly
reduce their long-term pension liabilities."

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