UK Plans Shuttering to New Members

A Watson Wyatt survey of 200 UK plans found that 54% of final salary plans were changed in some way during the past two years, according to news reports.

Some 16% of firms chose to keep the plans open to new members but increased employees’ contributions or reduced their benefits, while 8% of firms introduced new plans altogether with some form of risk sharing, such as a career average scheme or a cash balance one, according to news reports. Under a career average scheme a member’s pension is based on a proportion of the average amount they were paid during their career, rather than their final salary.

However, the survey also found that employers who offer pension benefits linked to salary are increasingly changing their plan designs to avoid taking on “longevity risk”.

Of those that maintained the link to pay, 6% now offer career average or cash balance plans, a further 16% have kept defined benefit pension schemes, but reduced benefits or increased member contributions and 46% have made no changes to their final salary plan, leaving it open to new members.

“The pace of change to employer sponsored pension plans has been incredibly fast,” Colin Singer, a Watson Wyatt partner, said in a news release. “But while the well documented trend away from final salary pensions and towards defined contribution continues, perhaps the more significant finding is the number of employers who are moving to alternative, risk-sharing designs such as career average or cash balance.”