Quarter of biggest companies avoid burden of defined-benefit pensions

ONE in four of the UK’s biggest companies no longer offer any of their staff access to a defined benefit pension, research has indicated.

Around 25 per cent of FTSE 100 companies now offer only a defined contribution scheme, having closed their defined benefit one to both new and existing members, according to consultants Towers Watson.

The figure is considerably higher than the 15 per cent of blue chip companies that had completely closed their defined benefit pension when the same research was carried out last year.

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The study also found that 90 per cent of firms offer a defined contribution pension to new staff, with only one per cent still offering a final salary scheme, and the rest offering different types of defined benefit schemes, such as a career average.

Defined benefit schemes, under which employers guarantee how much a pension will be worth on retirement based on a member’s salary and the number of years they have belonged to the scheme, have become increasingly expensive to offer in recent years due to rising life expectancy and volatile investment returns.

The schemes have been replaced with defined contribution ones, under which the individual shoulders all of the risk, with the company making set contributions.

Paul Macro, senior defined contribution consultant at Towers Watson, said: “With a two-third increase in the number of FTSE 100 companies offering only defined contribution to their employees, defined contribution pensions continue to dominate the retirement savings landscape.

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“This is a trend we expect to see continue in the next couple of years as more firms close defined benefit schemes to future accrual and frequently replace defined benefit with defined contribution.”

He added that the recent recommendations made by former Labour Minister Lord Hutton, that public sector final salary schemes should be replaced with career average ones, rather than defined contribution pensions, would mean the gap between public sector and private sector provision would continue to widen.