High cost of final salary pension schemes restricts remuneration packages

One in two UK employers with final salary (defined benefits) pension schemes believe that the increased costs of funding them has had a negative impact on the remuneration packages their company is able to offer, research has revealed.

Almost half of the companies surveyed (48%) also feel that the costs of these schemes will continue to damage other employee benefits in the future.

The study of 150 companies by Aon Consulting indicated that rising pension costs associated with final salary schemes were also seen to have an impact on the price of goods and services, with 30% of companies stating that they had already increased prices.

One-third (33%) of those surveyed forecast that pension costs would continue to increase the upward pressure on the cost of their goods and services in the future.

More than one in five companies (22%) also felt that the increasing cost of funding their final salary schemes negatively affected their share price.

Paul McGlone, principal and senior actuary at Aon Consulting, said: “The funding of defined benefit schemes is still a considerable problem for many UK companies. With the rising equity markets and the rise in bond yields that we have seen over the past year, the strain many companies seem to have been under regarding their pension schemes does appear to have eased slightly.”

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