Final salary schemes to be phased out

Posted on 18 Aug 2009 by The Manufacturer

Millions of UK workers could lose their final salary pension schemes over the coming years, according to a survey by consultancy firm Watson Wyatt which found 48 per cent of employers plan to close the programmes for existing staff by 2012.

Most private sector companies have already curtailed such schemes for new starters, opting for defined contribution (DC) programmes instead. These are less beneficial for workers but cheaper for firms.

There are currently around 2.4 million UK workers with existing final salary schemes in place, typically paying out a guaranteed 20-40 per cent. Based on the consultant’s findings, over a million now face the far less lucrative 5-15 per cent usually offered under DC.

“More and more employers are taking a long, hard look at the risks they run through their pension schemes and saying ‘enough is enough’,” said Rash Bhabra, head of corporate consulting at Watson Wyatt. “What was once seen as the nuclear option is starting to become the norm.”

Research released earlier this month by LCP consulting found Cadbury and Diageo are the only large UK manufacturing forms to still offer final salary schemes to both new and existing employees. Both these companies have had HR tactics called into question though recently, with Diageo incurring the wrath of almost a whole nation of Scots by closing its Kilmarnock bottling plant and Cadbury’s workers staging protests over unfulfilled pay rise promises.