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Final salary pensions 'to close' Final salary pensions 'to close'
(30 minutes later)
A quarter of major private sector firms expect to close their final salary pension schemes to existing members in the next few years, a study suggests.A quarter of major private sector firms expect to close their final salary pension schemes to existing members in the next few years, a study suggests.
Many companies have already shut schemes to new members, saying they are too expensive to finance.Many companies have already shut schemes to new members, saying they are too expensive to finance.
But barring current contributors will become more common, says the National Association of Pensions Fund (NAPF), which represents large pension funds.But barring current contributors will become more common, says the National Association of Pensions Fund (NAPF), which represents large pension funds.
The full findings of the report, seen by the BBC, will be released on Monday.The full findings of the report, seen by the BBC, will be released on Monday.
The research found 25 of the 100 firms that responded expected to close final salary schemes to existing members.The research found 25 of the 100 firms that responded expected to close final salary schemes to existing members.
"This is the death knell for the final salary pension system. Employees cannot afford to fund these long term, open ended commitments anymore," said Ross Altmann, a former government adviser.
The NAPF wants the government to step in to help pension funds.
Limited membershipLimited membership
The most recent official figures showed that just 2,240 of the 8,490 private sector final salary schemes (26%) were open to new members.The most recent official figures showed that just 2,240 of the 8,490 private sector final salary schemes (26%) were open to new members.
Closing schemes open to new members will be more likely because of the credit crunch, according to the NAPF survey.Closing schemes open to new members will be more likely because of the credit crunch, according to the NAPF survey.
So far, only a small minority of final salary pension schemes have been closed to existing members, with Rentokil being among the most high profile firms to do so.So far, only a small minority of final salary pension schemes have been closed to existing members, with Rentokil being among the most high profile firms to do so.
When such a scheme is closed, members are generally told they can no longer contribute and must pay into another scheme instead - which is cheaper for the firm.When such a scheme is closed, members are generally told they can no longer contribute and must pay into another scheme instead - which is cheaper for the firm.
Pension savings which have already been accrued are protected.Pension savings which have already been accrued are protected.
But contributions made to the new fund tend to be more risky as they are tied to financial markets, rather than salary.But contributions made to the new fund tend to be more risky as they are tied to financial markets, rather than salary.
There is also the potential for people to save less, because when taken out of a final salary scheme, workers have discretion over how much they put aside.There is also the potential for people to save less, because when taken out of a final salary scheme, workers have discretion over how much they put aside.
Shut outShut out
Former UK chief executive of the Prudential, Mark Wood, who now runs the Paternoster pensions business, told the BBC that more people being shut out of their final salary pension scheme was "almost inevitable in the current economic crisis".Former UK chief executive of the Prudential, Mark Wood, who now runs the Paternoster pensions business, told the BBC that more people being shut out of their final salary pension scheme was "almost inevitable in the current economic crisis".
"The impact could be very dramatic depending on someone's age and where they are in the career," he said"The impact could be very dramatic depending on someone's age and where they are in the career," he said
"Over the next few years the onus will be on personal responsibility rather than the company taking responsibility."Over the next few years the onus will be on personal responsibility rather than the company taking responsibility.
"People will have to take guidance on how much money to set aside. With low interest rates, the amount of money you need to pay into a pension is far greater than it was a year ago.""People will have to take guidance on how much money to set aside. With low interest rates, the amount of money you need to pay into a pension is far greater than it was a year ago."
However Mr Wood said the need for change was generally for good reasons, given people lived longer and tended not to have careers with the same firm.However Mr Wood said the need for change was generally for good reasons, given people lived longer and tended not to have careers with the same firm.
"We are living in retirement for 20 or 30 years and this system was never designed to provide an income for 20 or 30 years.""We are living in retirement for 20 or 30 years and this system was never designed to provide an income for 20 or 30 years."
Collective deficitCollective deficit
In 2007, open and closed private sector final salary schemes had 2.7 million members. And 47% of those people were in schemes open to new members.In 2007, open and closed private sector final salary schemes had 2.7 million members. And 47% of those people were in schemes open to new members.
The collective deficit of the UK's final salary pension schemes is volatile, but shot up in December to £195bn, according to the official pension scheme safety net.The collective deficit of the UK's final salary pension schemes is volatile, but shot up in December to £195bn, according to the official pension scheme safety net.
The Pension Protection Fund (PPF) said the deficit rose by 43% from the £136bn recorded at the end of November.The Pension Protection Fund (PPF) said the deficit rose by 43% from the £136bn recorded at the end of November.
The deterioration in their finances since then has been largely due to the international credit crunch, the worldwide economic slowdown and the accompanying slump in share prices.The deterioration in their finances since then has been largely due to the international credit crunch, the worldwide economic slowdown and the accompanying slump in share prices.
This has gone alongside poorer return on bonds, which are used to calculate the value of the assets that pension schemes need to be able pay pensions in the future.This has gone alongside poorer return on bonds, which are used to calculate the value of the assets that pension schemes need to be able pay pensions in the future.
Last month both the PPF and Pensions Regulator warned that final salary schemes were becoming riskier.Last month both the PPF and Pensions Regulator warned that final salary schemes were becoming riskier.
They pointed to both the declining value of scheme assets and the increasing possibility that more firms will go bust in the next year or so, leaving a hole in their pension funds.They pointed to both the declining value of scheme assets and the increasing possibility that more firms will go bust in the next year or so, leaving a hole in their pension funds.
Despite the huge wave of pension scheme closures seen in the UK in the past decade or so, nearly 29,000 schemes of all types were still open to new members last year.Despite the huge wave of pension scheme closures seen in the UK in the past decade or so, nearly 29,000 schemes of all types were still open to new members last year.