Closure of defined benefit pension schemes is the main option being considered by pension funds to deal with the end of contracting-out in 2016, research by Aon Hewitt has found.
It said the end of contracting-out would typically add around 2.5% of the DB payroll to an employer's National Insurance bill when it stops in April 2016 as a result of the government's state pension reforms.
Under the changes, the two existing state pension schemes will be merged into one payment, set at £144 a week in current prices. Pensioners currently top up their basic state pension of £107.45 a week with either the second state pension or through means-tested Pension Credit.
The move to a single state pension will bring an end to workers being able to contract out of the second state pension and instead receive payments through their workplace scheme. Both the employee and employer then pay lower National insurance contributions.
Aon Hewitt surveyed 91 organisations on their preparations for the ending of contracting-out.
Only one third had considered how they might respond, but more than half of those were considering closing their DB scheme to future accrual, among other options such as increasing member contribution rates.
James Patten, head of benefit design at Aon Hewitt, said: 'The ending of contracting-out is not just an administrative change - there will also be a considerable financial impact.
'As a consequence of the change, around 2.5% of a DB scheme's payroll will typically be added to an employer's National Insurance bill.'
He said most employers would be able to balance out this cost by either a reduction in the rate of future accrual or by increasing member contribution rates.
However, he said employers would also review their defined contribution plans because they would need to ensure they remained fit for purpose for a new population of members and continued to be viewed as an attractive part of the reward packages.
Of the two-thirds of organisations surveyed that had yet to consider how they might deal with the ending of contracting-out, Patten said they must bear in mind that a typical pension review can take around 12 months to implement.
He added: 'The ending of contracting-out is likely to require even more forward planning, particularly when it comes to member communications.
'For example, even if an employer simply intends to increase member contributions by 2.5% of pay from April 2016 to offset the additional employer National Insurance cost, members will want to be made aware of this proposal well in advance so they can plan for the reduction in take-home pay.'