UK - Many employers reviewing their existing defined benefit pension arrangements are looking to provide defined contribution plans which make their retirement benefits competitive with rivals, according to consulting firm Watson Wyatt.

Kevin Stratford, head of DC at Watson Wyatt, said companies now reassessing whether to maintain existing DB arrangements and concluding future accrual must cease are willing to invest some of the savings they make from moving away from DB into the design of a DC plan.

More specifically, employers are willing more than the median 10% contribution in many cases, said Stratford, because employees are increasingly aware of the sum needed to finance a decent pension.

"Most companies stopped new hires from receiving DB pensions some years ago, but what they are all doing instead is taking a look at what they have got, the structure and delivery model of their pension, but also the contribution environment. Many [employers] are looking at DC afresh, although a few are dumbing down ahead of 2012," said Stratford.

"There is a significant cost saving into moving away from DB, and [employers] are wiling to put some of that money into DC design. It is not a case of replicating DB, but looking at a benchmark in terms of recruitment and asking whether it meets the company's needs," he added.

His comments follow the publication of analysis of 250 pension fund respondents, conducted by Watson Wyatt, which suggests over one million people are likely to have to save in DC schemes over the coming years as half of all defined benefit pension plans will be closed to future accrual over the next three years, in light of the recent economic crisis and the impact of pension scheme valuation results on their business.

Watson Wyatt conducts an annual study of FTSE 100 DC survey, which tends to be used as a benchmark measure by companies when assessing what systems and contributions to make.

In light of recent developments, the consulting firm has found many employers without existing DB arrangements tend to opt for either a contractual stakeholder or group person pension plan - allowing GPPS to make a comeback according to Stratford - those with DB schemes are still building DC schemes within the DB trusts.

Such a move is forcing employers to go "back to basics", suggested Stratford, when assessing what strategy the scheme should have and what investment direction trustees want to take.

"When an employer is in this situation, it is back to basics in terms of how to go about it, and working with the trustee board to assess what their investment beliefs are. We have found offering 6-10 funds would be pretty typical of DC trusts. There has been some innovation around life cycling, there are more investment options, such as diversified growth. But auto-enrolment is focusing the mind too, because if that happens it is going to see huge additional cost burdens," said Stratford.

As well as trying to ascertain just how much investment choice members should be given, many employers and trustee boards are also paying more attention to communication of the need for pensions, noted Stratford, so employee and member websites containing games and financial modeling - such as that developed by ITV the pension schemes - are being increasingly developed to provide significantly more information about the benefits of saving for a pension.

"The key is communication. It is not relevant to an employer but internet access has to be adopted to entice members with innovative techniques, such as interactive modeling, games, and similar ideas providing information," added Stratford.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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