The number of companies fortunate enough to provide defined benefit (DB) pension schemes is predicted to halve by 2012, warns Watson Wyatt.

New research from the financial consultant shows that more than a million employees who are currently saving for retirement via a DB scheme may have to depend instead on defined contribution (DC). Although not all companies questioned expect to close their DB schemes completely, few of them believe they will leave them unchanged.

"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. "Companies who were delaying a decision on closing their schemes to existing members until others had stuck their heads above the parapet are not ready to act. There is a sense of inevitability that what was once seen as the nuclear option is starting to become the norm."

Only nine per cent of the DB providing employers has already closed to future accrual by existing members, and 50 per cent believe they will also be in this position by 2012. Three quarters of companies have already closed to new entrants, and of these, 48 per cent expect to close to existing member also within three years. 28 per cent expect their scheme to remain open to existing members but on less generous terms, and a quarter do not expect to make any changes. However, 16 per cent of this quarter has recently made their schemes less generous.

Watson Wyatt has attributed the closure to future accrual to three main factors: the economic environment; new pension scheme valuation results; and the fact these trends can be self-perpetuating.

"When employers are cutting jobs and freezing pay, pension arrangements will inevitably be put under the microscope. At the same time, companies are confronting much bigger deficits. The more they have to pay to shore up pension promises made in the past, the less money there is to pay for new pension promises going forward. These trends also get their own sense of momentum as companies benchmark themselves against their competitors. Directors will not want to explain to shareholders why they are off the pace when it comes to emulating the pension savings others have achieved so the recent surge of scheme closures could easily become an epidemic."

250 responses were submitted to Watson Wyatt in July 2009, with three quarters of respondents recording assets of £100million or more.

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