[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Wednesday, 13 July 2005, 09:18 GMT 10:18 UK
Pension cuts save UK firms 4bn
Commuters
Many workers cannot now join final salary pension schemes
Companies are saving an estimated 4bn a year by closing their final salary pension schemes, a report has said.

Brewin Dolphin Wealth Management (BDWM) said the cost of pension provision nearly halves when firms switch from final salary to money purchase schemes.

In total, the number of workers with final salary pensions has fallen by two million over the past ten years, the report said.

A pension body recently said all final salary schemes would close by 2010.

Firms struggle

Final salary pensions offer employees a fixed percentage of their salary when they retire.

As companies face up to huge deficits in their defined benefit (final salary) pension schemes, a growing number are taking the decision to close them
Martin Smith, BDWM chief executive

But employers have to take the investment risk and, in recent years, many firms have struggled to fund these schemes and have switched to money purchase pension plans. These schemes are cheaper for employers but do provide a less generous pension.

Under a money purchase scheme, workers put money into a pension fund which is used to buy an annuity - a financial product which provides an income - when they retire.

Reeling back

"As companies face up to huge deficits in their defined benefit (final salary) pension schemes, a growing number are taking the decision to close them to new members of staff and in some cases to existing employees," Martin Smith, chief executive of BDWM, said.

"They are moving them towards defined contribution (money purchase) plans, which usually mean smaller contributions from employers and less risk to them because they have no long-term liabilities."

Up to two-thirds of final salary schemes are closed to new members.

In June, Christine Farnish, head of the National Association of Pension Funds, warned that all final salary schemes would close to new members within five years.

Ms Farnish said that firms were "beginning to reel back" from final salary schemes as more effective accounting procedures made the costs crystal clear.


RELATED INTERNET LINKS:
The BBC is not responsible for the content of external internet sites


PRODUCTS AND SERVICES

Americas Africa Europe Middle East South Asia Asia Pacific