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Watson Wyatt sees final salary ‘hard core’

UK – Consulting firm Watson Wyatt says there will be a ‘hard core’ of UK companies sticking with final salary pension provision, for organisational and competitive reasons.

“A hard core of employers look set to keep their final salary pension scheme open to new employees because they believe it fits their organisational culture and gives them a competitive advantage,” Watson Wyatt said.

It surveyed more than 200 pension schemes - covering over 200 billion pounds (301 billion euros) in pension assets – and found that employers with final salary schemes had a range of reasons why they had retained them.

According to the survey, 75% of respondents said that employees valued the quality of the benefits, while 65% said final salary pensions fitted well with their organisation’s culture. Forty-five percent said it gave them a competitive advantage.

"While many employers have moved away from final salary to defined contribution or alternative, risk-sharing pension designs, there looks set to remain a hard core of employers who believe that in the long term a final salary scheme is the most suitable type of pension structure to meet their business strategy," said Colin Singer, a partner at the firm.

"However, some employers have sought to keep a final salary structure but share more of the costs with employees by increasing employee contributions, reducing the accrual rate for benefits, raising the normal retirement age or making early retirement terms less generous."

Watson Wyatt’s comments came as Russell/Mellon reported that pooled balanced funds made “tentative” gains in the second quarter.

It said: “Pooled balanced funds continued to make small gains in the second quarter of 2004, achieving a median return of 0.7% (1.1% in quarter one). During the quarter, positive overall equity returns were offset by negative returns in bonds and index-linked stocks.”

“While Balanced pooled fund performance in quarter two was not spectacular, this was the fifth consecutive positive return,” said Daniel Hall, publications and statistics manager.

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