Slowdown in closures of final-salary pension schemes

Final-salary company pension schemes are still closing at a rapid rate, says a survey from the actuarial firm Watson Wyatt. It showed that almost a third of final-salary schemes had closed in the past 12 months.

The closure rate has slowed, however, from 56 per cent this time last year. More than half the final-salary pension schemes surveyed by Watson Wyatt have done a major review in the past 12 months.

But there are signs that more employers are choosing other options for their staff pension arrangements than closure. The survey found that less than one in four of those reviewing their plans decided to switch to defined-contribution schemes, where pensions are dependent on the performance of the stock market.

"There is a widely-held perception that most companies are closing their final-salary schemes and are switching to pure defined-contribution arrangements," said Colin Singer, a partner at Watson Wyatt. "While there are plenty of employers that are doing this, many others are looking for other ways of reducing the costs and risk of running a pension scheme."

Almost 60 per cent of final-salary schemes were reviewed in the past year, compared with 55 per cent in the five preceding years. Of these, 55 per cent made no significant changes to their scheme, while 32 per cent closed the scheme to new members.

One in 10 companies chose to continue providing a final-salary scheme but with a reduced level of benefits. RAC, for example, asked staff to raise contributions or accept lower benefits. Only 2 per cent closed their scheme entirely, and 1 per cent offered members the choice of final-salary or another arrangement. Of the companies that abandoned final-salary schemes in the past year, the number switching to defined contribution has fallen from 97 per cent to 73 per cent.