Nearly two-thirds of UK employers who had not closed final salary pension schemes to new members two years ago have chosen to retain them in some form, according to a survey to be released this week.
The data from Watson Wyatt, the actuarial consultants, suggest employers are beginning to reconsider the replacement of final salary pensions with defined contribution schemes for new members as a means of controlling costs.
Stephen Yeo, consultant at the firm, said discussions with employers suggest many still value defined benefit schemes, where the pension is a percentage of the workers? salary, as a critical tool for recruitment and retention of skilled staff.
However, the survey also found that a rising number of employers who are continuing to offer pension benefits linked to salary are altering scheme design to avoid taking on ?longevity risk? - the risk that employees live longer than expected in retirement.
The survey is the latest to hint at a rethink among employers about the value of pension provision. Because employers? pension contributions do not attract National Insurance contributions, and because of generous tax incentives on pension investment, they are generally viewed as a much lower-cost and more efficient means of remunerating staff.
Surveys of these defined contribution schemes have shown that too many are unlikely to offer pension benefits anywhere near adequate for retirement incomes and recent research from the actuarial profession shows employers are already having to increase the percentage of pay they contribute.
Last year, the Bank of England warned that as employers scrapped traditional defined benefit pensions in favour of lower-cost schemes they were likely to be faced with rising demands for higher wages when the labour market tightened. This was likely to raise inflationary pressures in the economy.
The survey found that over half the schemes that had not closed their final salary schemes to new members two years ago had made some changes. However, less than a third of these had opted to close final salary schemes to new members.
Of those that have kept the link to pay, 6 per cent are offering career average or cash balance plans.
A further 16 per cent have kept defined benefit pension schemes, but reduced benefits or increased member contributions. Another 46 per cent have made no changes to the final salary scheme, leaving it open to new members.
