Final salary pensions under threat
A half of the final salary pension schemes still in operation in the private sector face closure by 2012.
A new survey of over 250 employers has found that some 50 per cent believe that they will shut their defined benefit schemes to all employees, existing as well as new, within the next three years.
As a result, up to a million employees will be moved to defined contribution schemes.
At the moment, 75 per cent of companies have closed their final salary schemes to new workers, but just 9 per cent have so far closed them to employees who were already members.
That figure is expected to balloon in the coming few years as firms battle with huge fund deficits. The Pension Protection Fund has estimated that the overall deficit among the UK’s 7,400 private sector schemes has now hit £158 billion.
Aside from the 50 per cent who plan to shut their schemes completely, 28 per cent intend to maintain their defined benefit schemes for existing employees but on less generous terms.
Final salary schemes provide employees with a retirement income calculated according to the length of time they have been members of the scheme and their salary at the point of retirement.
Defined contribution schemes, however, offer no such guarantee, and the retirement income they deliver depends on how well the fund has fared on often volatile stock markets.