Rate of change to pension schemes accelerates

Over
the past two years, more than 50 per cent of open final salary pension schemes
were changed, according to a survey by consultants Watson Wyatt.

Around
45 per cent of those employers that made alterations either retained their
final salary formula, but introduced higher employee contributions and/or
reduced member benefits, or introduced some form of ‘risk-sharing’ defined
benefit scheme.

Watson
Wyatt, which advises more than half of the 100 largest corporate pension
schemes in the UK, notes that while switching from final salary to defined
contribution for new entrants remains the most popular choice, the most
interesting trend has been the increase in risk-sharing pension scheme designs.

Watson
Wyatt’s biennial survey of more than 200 UK pension schemes found that of those
employers who had final salary pension schemes open to new entrants two years
ago:


30 per cent had closed them to new entrants and introduced defined contribution
arrangements


8 per cent had closed them to new entrants and introduced career average or
cash balance arrangements


16 per cent had kept them open to new entrants but reduced benefits or
increased member contributions


46 per cent had made no changes and the final salary scheme remained open to
new entrants.

"The
pace of change to employer-sponsored pensions has been incredibly fast,"
said Colin Singer, a partner at Watson Wyatt.

"But
while the well-documented trend away from final salary pensions and towards
defined contribution continues, perhaps the more significant finding is the
number of employers who are moving to alternative, risk-sharing designs, such
as career average and cash balance," he said.

By Mike Berry

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