Number of defined benefit pension scheme closures set to rise

Increasing numbers of defined benefit (final salary) pension schemes are expected to close in the next three years, according to research.

More than a quarter (27%) of the 115 UK employers surveyed by Aon Consulting offered defined benefit pension schemes to new members, but this is expected to fall to 18% in 2009.

Six in 10 respondents said they believed the scheme was “the right type of pension for my company”, and about 40% regarded it as a valuable recruitment tool.

The majority of pension schemes in the survey (61%) are currently closed to new members, but remain open to accrual for existing members. A fifth (20%) of respondents said they were considering closing their schemes altogether in the next 12 months, and four in 10 (40%) in the next three years.

The most common reasons cited for remaining open to accrual included a belief that the process of closing the final salary scheme would be too painful (32%), board resistance (36%), and union and employee pressure (38%).

Paul McGlone, head of employer advice at Aon Consulting, said the closure of final salary schemes was a contentious issue for employers.

“The decision to close to future accrual will get easier over time, as fewer existing employees remain in the scheme,” he said.

“Companies with a high staff turnover rate may be able to wait for the majority of final salary members to leave naturally, and tackle the closure issue when it is more manageable.

“The question for these businesses is whether the pain of going through closure and all of the associated staff difficulties is greater or less than the pain of continuing to accrue final salary benefits,” McGlone added.

 

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