From IDS Pensions Bulletin 209, October 2007

Engineering firms continue to move away from defined benefits

The eighth survey of Pay and conditions in engineering conducted by IDS shows that the trend away from final salary schemes has persisted this year. As employers continue to seek ways of minimising risk while still providing a pension for staff, the popularity of defined contribution products has continued to grow.

Survey findings in detail

This year’s survey covered 45 organisations with a total of 103,083 employees. Companies were asked to provide information about what type of retirement benefits they offer and whether provision for new employees differs from those for existing staff.

We found that 16 employers (36 per cent) offered no final salary scheme to either existing or new staff, compared with 17 out of 54 respondents last year. Firms with no final salary offering tended to be smaller to medium-sized enterprises, with a median of 267 employees, compared with the 616 median for the sample as a whole.

Pension provision for new starters

The survey reveals a considerable difference between pension provision for long-serving employees and newly-employed staff, with the overwhelming majority of final salary schemes now closed to new entrants.

Of a total of 29 companies offering a final salary scheme for existing employees, just four allowed new staff unconditional entry into it on the same terms as existing staff, while 24 offered different pension arrangements for their new starters and one firm made entry for new starters conditional upon age. Two other companies took a slightly different approach to controlling entry to its final salary scheme, with new starters joining its DC scheme and being allowed to transfer to the final salary scheme after a qualifying period of five years’ service.

Out of the entire sample, well over half of respondents offered different arrangements for new staff. The range of pension schemes offered to new starters were:

• 35 firms offer DC only

• one firm offered DB only

• three firms offered a combination of DB and DC.

Personal pensions, GPP and stakeholder

As the cost of operating final salary schemes has escalated, many companies have closed them to both existing and new employees, introducing in their place a range of predominantly DC alternatives, which, not normally being set up under trust, offer a less risky means of providing a pension from an employer’s perspective. Sixteen of this year’s participants do not operate a final salary scheme. Amongst these:

• eight firms only offer GPP

• six firms only offer an occupational money purchase scheme

• one firm only offers a stakeholder scheme

• . one firm offers employees the choice between a GPP scheme and a stakeholder.

What’s in IDS Pensions Bulletin 209