UK – Mercer Human Resource Consulting has calculated that the costs for a typical final salary scheme are expected to rise by 30% over the next five years.

“Mercer’s calculations show that costs for a typical final salary scheme are expected to rise by 30% over the next five years,” the company said in a news release. “Closure of such a scheme to new entrants will only reduce the increase by 5%, to around 25%.”

"Employers everywhere still need to bite the bullet and take some hard decisions on cutting their pension costs," said Peter Bowers, a European partner at Mercer.

"The majority of companies have already closed their final salary schemes to new members, but this was the easy step. The next big issue is how to deal with the current membership."

"Closing a scheme to new entrants is a relatively easy decision to take. But employers are fooling themselves if they think this alone will solve the problem of rising pension costs and increasing risks," said Bowers. "Unless companies have a particularly high staff turnover, such a decision will not significantly reduce their long-term pension liabilities."

Mercer predicts “a new wave of pension reviews” where final salary schemes are either adapted to reduce employer risks or closed to existing members.

Bowers added: "For existing members, a straight move to defined contribution benefits may be the simplest solution for employers, but there are many issues to address.”

“Above all, companies face the prospect of disgruntled employees and, in some cases, legal action. On the whole, a compromise solution that shares the risks between the employer and employees is generally easier to sell to the workforce."