More than half the companies undertaking major reviews of their final salary pension schemes in the ...
More than half the companies undertaking major reviews of their final salary pension schemes in the past five years have opted to close their schemes to new entrants.
Consultancy Watson Wyatt is to release research later this month showing just a third of companies that have undertaken such a review have decided they will make no significant change to the level of benefits they offer employees.
Of the 219 companies in the 2002 Pension Plan Design Survey, some 55% have undertaken a major review in the past five years.
Of these, 56% decided to close their final salary schemes just to new entrants while allowing existing members to continue to accrue benefits. They have either introduced a new plan or revised terms for entrance into their defined benefit scheme.
Some 7% of those that had a review decided to continue to provide a final salary promise but with a reduced level of benefits, while 3% closed their final salary scheme to new and existing members and introduced a new plan or section and 1% offered members the choice of final salary and another arrangement.
'The main drivers for change are cost-related, with around 80% of organisations citing cost issues,' said Colin Singer, a partner at Watson Wyatt. 'The pace of change has quickened. In our 2000 survey, we found that only a quarter of final salary plans were substantially amended following a review. Now the proportion is around two-thirds.'
The most important reason cited by 48% of companies for reviewing their pension plans is the control of cost and the volatility of equity markets.
Some 28% said reducing cost is the prime objective of scheme closures and modifications, while 7% are primarily looking to align pension benefits with their business needs.
Other reasons cited for change include modifications to pension accounting standards, the impact of MFR legislation and changes in working patterns.
By far the most popular type of plan introduced after a scheme review is an occupational defined contribution plan, which was introduced in 62% of cases. Stakeholder plans were introduced in 20% of cases, group personal pensions in 15% of cases and career average schemes in just 3%.
Watson Wyatt's 2002 Pension Plan Design Survey covers organisations ranging from small private companies to multinationals. The assets of the plans covered total more than £350bn and relate to about one million employees.
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