Pension schemes under increasing threat
The rate at which final salary pensions schemes are closing looks set to rise, it has been predicted.
A study carried out by the National Association of Pension Funds (NAPF) found that only 23 per cent of final salary funds remain open to new members. That compares with 28 per cent a year ago.
The rate of decline was, NAPF reported, faster than at any time in the previous two years.
There is a danger that a significant proportion of those schemes that are still open will close not only to new but also to existing members.
While 62 per cent of employers with schemes still open said that they anticipated allowing members to increase their pension savings over the next five years, almost a fifth (18 per cent) have plans to shift both existing and new employees to less expensive defined contribution or money purchase schemes.
The picture is a similar one as far as final salary schemes that have already been closed to new employees are concerned.
Just under a third (31 per cent) of these employers intend to move all active members to defined contribution schemes for their future retirement savings.
In its annual survey of pension schemes published last month, the Office for National Statistics (ONS) revealed that there had been a slowing down in the rate at which numbers of employees paying into private sector final salary schemes have fallen.
In 2008, some 2.6 million employees remained members, a drop of 0.1 million on the figure for 2007. In 2006, however, the number was 3 million.
But the ONS research did not include data on the actual number of schemes that were taking on new members or were still building up funds for existing employees.
Commenting on the figures, NAPF argued that the government could introduce steps to make it easier for employers to fund their schemes, such as the issue of long-term, inflation-protected bonds.
The bonds would yield investment returns that offer a better chance of generating the money required to meet final salary retirement payments.
Joanne Segars, NAPF’s chief executive, said: “The Chancellor has a golden opportunity to make a difference in his pre-Budget Report by announcing that the government will issue more long-dated and index-linked gilts.
“This single measure would benefit pension funds by helping to reduce deficits and support corporate scheme sponsors by reducing the scale of pension fund liabilities on their balance sheets.”