Record number of final salary schemes closed to new members

Research by Aon Consulting revealed just 17 per cent of schemes are now open to new members, down from 28 per cent last year and from half in 2003.

Aon said as 83 per cent of schemes are now closed, those remaining open schemes have become a "prized asset" in the fight to retain employees.

The 2008 Employer Survey found tighter regulation, volatile market conditions, strengthening of longevity assumptions and fears over future developments in accounting for pensions have all had an impact on the market.

As such, 81 per cent of schemes are still allowing further pension accrual. Employers attributed this decision to competitive pressure related to employee retention.

Meanwhile, 32 per cent of employers continuing to offer defined benefit (DB) schemes to new entrants said that closure was "too painful" to contemplate. This figure is up from 17 per cent last year, which can be partly explained by several high profile closures to future accrual during the course of last year.

June Grant, principal at Aon Consulting, said: "With the number of final salary schemes plunging to a record low, they have now become gold dust for the employees who still have them. Employers can turn this to their advantage because the schemes give them a competitive edge in the fight to attract and retain talent

"While regulation, improved life expectancy and market volatility have all served to increase pressures on employers sponsoring DB pension schemes, good scheme design can play a vital role in mitigating their effects.

"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. Options to achieve this include increasing the scheme’s normal retirement age, reducing the rate of benefit accrual and increasing members’ contributions.

"Apart from adapting to legislative change, the fundamental design of most DB schemes has changed little over the decades since they were first introduced. Most scheme sponsors would benefit from reviewing their scheme design from a more radical perspective, and one that both supports corporate strategy and addresses employee resistance to change."