Pension fund contributions are being slashed to as low as 10 per cent as companies review their schemes to address longevity, high costs and volatile markets, according to Mercer.

A survey by the consultancy firm found that as well as cutting contribution rates, it expects the evolution of the so called traditional defined benefit (DB) arrangement to continue, with at least a third of employers saying they are making changes to their plans.

Of those taking part in the scheme design survey, which looked at multinational companies in the UK, US, Germany, France, Italy and the Benelux countries, only 14 per cent said their DB schemes were open to future accrual. Thirty-eight per cent had schemes which were closed to future accrual and 48 per cent said their schemes were closed to new entrants.

Chris Sheppard, head of Mercer’s scheme design group, said many employers were trying to preserve elements of DB where possible, but with changes.

“This is a story of evolution. The DB plan as we have known it is heading towards extinction, but new species are appearing as companies try to adapt and preserve what is a very highly-valued employee benefit and staff retention tool.

“A notable change has been the drop in average size of employer contribution.”

According to the survey, of those schemes that were open for accrual, the average level of employer contributions was 17 per cent and the average level of employee contributions was 6.3 per cent.

Where changes have been made to benefit provision, the average level of employer contributions had decreased to an average of 11.3 per cent and the average level of employee contributions increased to 6.4 per cent.

For companies with planned changes, the average level of employer future service contributions were to drop to 10 per cent and employee contributions were proposed to fall to 5.5 per cent.

Alongside making changes to contribution rates, employers are reducing pension increases or revaluations, switching to a career average arrangements, reducing the accrual rate, increasing the normal retirement age, and capping or limiting increases to pensionable salaries in a bid to keep their valued schemes ongoing.

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