UK- Over half the companies participating in a study by the consultant Watson Wyatt and reviewing their final salary pension scheme have opted to close it to new entrants.
According to Watson Wyatt’s 2002 Pension Plan Design Survey, 56% of the companies undertaking major reviews of their final salary pension schemes in the past five years have opted to close their scheme to new entrants while only a third have decided to make no significant change.
The survey covers 219 organisations which range from small privately-owned companies to global corporations. Between them, the schemes account for over £350bn in assets and cover around one million employees.
55% of the survey’s participants have undertaken a major review in the past five years. Of these, 56% have decided to close their final salary schemes to new entrants - while allowing existing members to continue to accrue benefits - and introduced a new plan or section.
Following a review, 7% of companies decided to continue to provide a final salary promise but with reduced benefits, 3% closed their final salary to new and existing members and introduced a new plan or section, and 1% offered members an alternative to the final salary scheme.
Colin Singer, a partner at Watson Wyatt, says the main drivers for change are cost-related with four out of five organisations citing cost issues.
"The pace of change has quickened. In our 2000 survey, we found that following a review only a quarter of final salary plans were substantially amended - now the proportion is around two-thirds," he says.
The most important reason employers give for reviewing their pension plans is the control of cost and volatility, cited by almost half the 48% of companies.
Some 28% said reducing cost was the prime objective, while 7% were primarily “looking to align pension benefits with their business needs.”
Other reasons given included changes to pension accounting standards, the impact of minimum funding requirement legislation and changes in working patterns.