Final salary schemes for new members hit record low

LONDON (Citywire) - Barely a sixth of final salary pension schemes remain open to new members according to research from Aon Consulting, following a sharp drop from 28 percent last year to a record low.

But as the schemes continue their march towards extinction they have become ‘gold dust' for employers seeking to retain staff, the consultancy said, noting that 81% of schemes allowing further accrual for existing members.

The Aon 2008 Employer Survey, which questioned over 100 managers of defined benefit schemes, found a combination of factors had contributed to the demise including tighter regulation, volatile market conditions, longer life spans and fears over future developments in accounting.

As recently as 2003, half of schemes were open to new members.

June Grant, principal at Aon Consulting, said employers could turn the scarcity of final salary schemes to their advantage. ‘They have become gold dust for the employees who still have them,' she said.

But she acknowledged that the only surefire way to mitigate the effects of restrictive conditions was to cut benefits. ‘Financial innovation over recent years has helped scheme sponsors to reduce volatility, but the only way to reduce the real level of cost is by reducing the benefits offered,' she said.

Options included raising the employee's retirement age, reducing the rate of benefit accrual or increasing members' contributions, all of which would reduce the appeal of the schemes. (c) Citywire Financial Publishers Ltd 2008.