Half of defined benefit pension schemes closed to all by 2012

Half of the UK companies that still offer defined benefit (DB) pension schemes expect to have closed these to all employees by 2012, according to research by Watson Wyatt.

The survey showed very few schemes will go unchanged, so more than one million employees currently saving for their retirement through a DB scheme may have to rely instead on defined contribution (DC) schemes, where retirement incomes are less predictable because they depend on investment returns and the future cost of annuities.

Rash Bhabra, head of corporate consulting at Watson Wyatt, said: “More and more employers are taking a long, hard look at the risks they run through their pension schemes and saying ‘enough is enough’. Companies which were delaying a decision on closing their schemes to existing members until others had stuck their heads above the parapet are now ready to act. There is a sense of inevitability that what was once seen as the nuclear option is starting to become the norm.”

Watson Wyatt’s findings are based on more than 250 survey responses, which include many of the UK’s largest employers. The research also showed that:

  • Only 9% of the defined benefit schemes surveyed have already closed to future accrual to existing members. However, 50% think they will be in this position by 2012.
  • Most companies (75%) have already closed their schemes to new entrants without yet closing them to existing members. Of the companies in this position:
  • 48% expect to close their scheme to existing members within three years.
  • A further 28% expect to keep their scheme open to existing members but on less generous terms.
  • 25% do not expect to make any changes. However, this includes 16% that have recently made their schemes less generous.

Less than a tenth of companies with schemes that are closed to new entrants but open to future accrual envisage that, come 2012, their employees will still be accruing benefits on the original terms.

  • The 16% of schemes currently open to new entrants is expected to fall to 2% within three years. One in four of these schemes expects to close not only to new entrants but also to existing members by 2012.

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