Companies seen further cutting pension benefits

A man poses with a stack of British sterling coins in London January 16, 2007. Over a third of companies with defined-benefit (DB) pension schemes plan to either close them to new members or limit their benefits over the next five years, an industry body said on Friday.

LONDON (Reuters) - Over a third of companies with defined-benefit (DB) pension schemes plan to either close them to new members or limit their benefits over the next five years, an industry body said on Friday.

A survey by the National Association of Pension Funds (NAPF) showed that 15 percent of companies which have so far kept open their DB scheme expect to close it to new entrants, while 22 percent said they would limit their benefits to cap the cost or risk.

Of 369 respondents to the survey with combined pension assets totalling nearly 490 billion pounds, 1 percent said they would close their scheme to current employees and switch them into less lucrative defined-contribution schemes.

The survey showed that 40 percent did not expect to change pension arrangements for new employees in the next five years, but 22 percent said they did not know or declined to say how they would change pension benefits to new entrants.

Larger organisations were most likely to give this answer, "perhaps reflecting the sensitivity of this information," said the NAPF.

Airport operator BAA's recent attempts to close its DB pension scheme prompted workers to vote for strike action.

The NAPF survey said 31 percent of private sector companies have kept their DB scheme open, down from 2006's 33 percent.

The government's recent proposals to ease the burden on firms with DB schemes, which offer a retirement income linked to an employees' final salary, do not go far enough to dissuade companies from closing them in future, argue critics.

"The Government must use the Pensions Bill to bolster current workplace pensions to ensure their future existence for today's and tomorrow workers. The deregulation proposals are a good start, but they are only that," NAPF Chief Executive Joanne Segars said.

Firms have increasingly turned their backs on their DB schemes as the equities bear market in the early 2000s, tougher regulation and longer life expectancy combined to make such pension funds a growing financial headache.

Over 200 DB schemes have closed to new entrants each year since 2004, according to the Pension Protection Fund's 2007 Purple Book of statistics on the pension sector.

(Editing by David Holmes)