Companies that have axed final salary pension schemes have cut the amount they pay into their replacements by a third, according to new research.

Some firms have reduced the amount they pay in by as much as a half, according to a survey of nearly 300 company pension schemes.

Their workers not only face a higher risk from their new scheme, but are also likely to have a much lower income in old age Bryn Davies Report author

And around a quarter of companies surveyed have now closed their final salary schemes to new members - up from around 10% three years ago when the research was last carried out.

Lower investment returns and longer life expectancy have made it increasingly expensive for companies to offer final salary schemes, which are supposed to guarantee an income in retirement.

Stock market falls

Instead many firms have chosen defined contribution schemes that they only guarantee how much they pay into a plan and not what it will be worth on retirement.

In money purchase schemes individuals shoulder the investment risk themselves.

Top 10 pension schemes

BP BAT Parliamentary Contributory Fund Diageo (gold level) NMR Shell Portsmouth Water Granada Fund (main section) Asda CGNU (money purchase scheme)

The report's author Bryn Davies said: "Many employers remain committed to final pay schemes.

"But if they switch to a money purchase basis most take the opportunity to cut back on the value of their employees' pension benefits.

"As a result, their workers not only face a higher risk from their new scheme, but are also likely to have a much lower income in old age."

The survey for Union Pension Services examined 272 company pension schemes to see how they compared with a hypothetical two-thirds final salary scheme.

Best benefits

Oil group BP offered the best company scheme paying 1/45th of a member's final salary for every year they belonged to the scheme with staff contributions at 5%.

It was found to be 24% better than the two-thirds pension scheme which would pay 1/60th of an employee's salary for every year they were a member.

British American Tobacco offered the second best scheme - 19% better than the hypothetical scheme - paying out 1/60th for every year of membership but not requiring any staff contributions.

Insurer Aviva's defined contribution scheme was the only non-final salary pension to make it into the top 10.

The pension, formerly the CGNU Scheme, was 10th overall and 5% better than the hypothetical scheme.

If members do not contribute to the scheme Aviva pays 8% of their salary each year.