Many employers are considering closing final salary schemes to existing members, according to a survey of 159 predominantly larger employers.
And employees with final salary pensions are being asked to pay more and work for longer for the privilege of remaining in what is an increasingly rare type of pension scheme.
However, the average 5.2% of salary member contribution still leaves employees with an excellent pension deal, particularly if compared to what is typically available to members of defined contribution schemes, according to the survey by consultancy Watson Wyatt.
The Pension Plan Design Survey says there is a continuing trend towards closing final salary schemes, with only a third still open to new members. But now existing members are now in the firing line.
“While closing final salary schemes and halting accrual for existing members remains extremely rare, our survey reveals that many employers would be likely to consider this option if the costs, risks and the regulatory burden continue to increase,” said Kathryn Armitstead, a senior consultant at Watson Wyatt. “What their competitors do will also be a factor.”
The average member contribution rate to final salary schemes has risen over the past two years from 4.6% to 5.2%.
“Companies believe the upward trend in member contribution rates will continue,” said Armitstead. “We can reasonably expect the average to rise to 6% over the next two years.”
The survey finds that employees are not only being asked to pay more but to work beyond 65, with 78% of companies in the survey expecting their normal retirement age to rise in the next two years, compared with the 65% of just two years ago.