The stampede out of final salary schemes is gathering pace, with four out of ten schemes expected to close to existing members within the next 10 years, a report said today.

Some 6 per cent of final salary schemes have already shut to further contributions from existing members. The figure is expected to jump to around 15 per cent of all plans by 2010, and to over 40 per cent in the next five to 10 years, according to Watson Wyatt, a pension consultant.

The report dashes hopes that the outlook for final salary plans has improved. Final-salary plans - also called defined benefit schemes- pay a retirement income linked to earnings. A shift away from the plans would force more workers into money-purchase schemes, leaving their pension incomes at the mercy of the stock market and annuity rates.

Surveys showed the rate of final salary pension closures had abated in 2007 after a period between 2002 and 2006 when the majority of firms had shut their schemes. But the report suggests that the slowdown will be short-lived as stock market turmoil, tighter regulation and longer life expectancy causes the cost of running the plans to soar.

Employers are also expected to shut final salary pensions at an increasing rate to new employees. The proportion of schemes open to new entrants is expected to drop from 25 per cent to 18 per cent by 2010 and just 14 per cent in the next decade.

However the shift en-masse to money purchase pensions is not all bad news.

Kathyrn Armitstead, a senior consultant at Watson Wyatt, said: "Many of the organisations in our survey see great value in providing pension benefits to their staff. We are seeing employers increase the contribution rates to their money purchase plans in order to deal with the twin issues of longer life expectancies and low interest rates which are leading to lower benefits than were originally envisaged."

The Watson Wyatt Pension Plan Design Survey 2008 focused on private sector pension schemes with total assets of over £230bn. Some 75 per cent of the 134 organisations in the survey had more than 1,000 employees in the UK and 30 of the FTSE 100 were represented.

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