Calculators

Half of UK firms say they expect to close their defined benefit pension plans

August 2009

Half of UK final salary schemes to close? Half the UK companies with defined benefit pension schemes expect to have closed them to all employees by 2012, according to new Watson Wyatt research.

More than one million employees currently saving for their retirement through defined benefit pensions may have to rely instead on defined contribution schemes, where retirement incomes are less predictable because they depend on investment returns and the future cost of annuities. Not all companies expect to close their defined benefit schemes altogether but very few expect to leave them unchanged.

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 who 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.

“When defined benefit schemes began to close to new entrants, existing members thought they would be unaffected as long as they stayed with the same employer. However, when times are tough, it is hard to justify keeping more generous pension arrangements for a dwindling number of long-serving staff. Those still in defined benefit schemes have been protected from the recent stock market downturn but even they are now going to have to live in a world where it is not the employer’s problem if the money that was put aside will not buy the pension it was supposed to.”

Watson Wyatt’s findings are based on more than 250 survey responses, which include many of the UK’s largest employers. You can read more about the survey on the Watson Wyatt web site: Pension Survey Results.

If you are a member of a defined benefit pension scheme, or you are responsible for your company's final salary scheme, please feel free to contact Shirebrook to discuss this important topic.

Shirebrook Financial Services Ltd is authorised and regulated by the Financial Services Authority. The contents of this article do not constitute advice and should not be taken as a recommendation to purchase or invest in any of the products mentioned. Before taking any decisions, we suggest you seek advice from a professional financial adviser.

All figures and data contained within this article were correct at time of writing.

Half of UK firms say they expect to close their defined benefit pension plans

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