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August 18, 2009

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UK firms closing pension schemes

THE fallout of the financial crisis is forcing a rising number of United Kingdom firms to close their expensive defined benefit pension schemes in favor of cheaper pension arrangements, new research has found.

Half of UK companies expect to have closed their defined benefit schemes - which pledge a level of pension linked to their salary - to all employees by 2012, a survey by pension consultants Watson Wyatt showed yesterday.

"More and more employers are taking a long, hard look at the risks they run through their pension schemes and saying 'enough is enough'," said Rash Bhabra, head of corporate consulting at Watson Wyatt.

"What was once seen as the nuclear option is starting to become the norm," he added.

More than one million employees currently in defined benefit or DB schemes may have to rely on defined contribution or DC schemes, where they have to deal with significant investment and mortality risks that employers used to bear, Watson Wyatt said.

Falling equity markets, increasing longevity and new regulation have accelerated the trend of UK companies closing their expensive DB schemes in favour of cheaper DC schemes.

Recently, IBM said it planned to close its final salary pension in the UK. BP has also said it would close its final salary scheme for new UK employees joining the firm after April 2010.


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