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Cost of schemes prohibitive
Research released by consultants Watson Wyatt claims that almost one million workers will no longer qualify for final salary pensions over the next three years. Almost 50 per cent of companies that are still offering final salary schemes for their longer serving staff will be transferred to defined contribution (DC) schemes which are far less generous. Some employers (28 per cent) will continue to run the scheme but will water down benefits in other ways.
During the past ten years the majority of private sector employers have closed their final salary schemes to any new employees but only 9 per cent have closed them to existing workers and so around 2.4 million employees have continued to bank valuable benefits. However, lately, more large companies have decided to close their schemes and to put all of their employees into cheaper schemes including IBM and Barclays.
Defined contribution schemes amounts are not guaranteed unlike the more expensive final salary schemes. The DC schemes are worth between 5 to 15 percent of base pay whilst final salary schemes are worth from 20 to 40 per cent. The reason for most firms deciding against final salary schemes comes down to poor investments and the longer lifespan of workers.
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