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| Warning over final salary schemes as combined pension fund deficit grows | Warning over final salary schemes as combined pension fund deficit grows |
| (4 months later) | |
| Final salary pension schemes could be consigned to history in just three years, experts have warned, as it emerged that the combined deficit of UK pension funds increased by £20bn in April to hit £256.6bn. | Final salary pension schemes could be consigned to history in just three years, experts have warned, as it emerged that the combined deficit of UK pension funds increased by £20bn in April to hit £256.6bn. |
| A combination of increased life expectancy, poor fund performance and low gilt yields have made final salary schemes expensive to run, and the imminent introduction of a single flat-rate state pension will further add to the cost. | A combination of increased life expectancy, poor fund performance and low gilt yields have made final salary schemes expensive to run, and the imminent introduction of a single flat-rate state pension will further add to the cost. |
| The Pensions Protection Fund, the government's safety net for members of final salary schemes, said that the combined deficit of UK's 6,316 private sector final salary schemes had risen by £20bn in April, to reach £256.6bn. That follows a £35bn increase in March. | The Pensions Protection Fund, the government's safety net for members of final salary schemes, said that the combined deficit of UK's 6,316 private sector final salary schemes had risen by £20bn in April, to reach £256.6bn. That follows a £35bn increase in March. |
| The PPF said 5,142 schemes were now in deficit and 1,174 were in surplus, and that across the board there were assets of £1,130bn compared with liabilities of £1,387bn. | The PPF said 5,142 schemes were now in deficit and 1,174 were in surplus, and that across the board there were assets of £1,130bn compared with liabilities of £1,387bn. |
| The figures came as delivery firm DHL confirmed it had become the latest company to propose closing its scheme for some of its workers in the UK. | The figures came as delivery firm DHL confirmed it had become the latest company to propose closing its scheme for some of its workers in the UK. |
| Around 3,000 employees of the firm's supply chain division are expected to be affected by the change, which follows the closure of the scheme to new members several years ago and is a result of the increasing cost of offering a final salary pension. | Around 3,000 employees of the firm's supply chain division are expected to be affected by the change, which follows the closure of the scheme to new members several years ago and is a result of the increasing cost of offering a final salary pension. |
| Confirming that the UK firm was about to begin a consultation with staff, a spokesperson for DHL Supply Chain said: "We have recently undertaken a detailed review of the defined benefit sections of our retirement plan, taking into account the latest valuation and prospective funding requirements for future service. | Confirming that the UK firm was about to begin a consultation with staff, a spokesperson for DHL Supply Chain said: "We have recently undertaken a detailed review of the defined benefit sections of our retirement plan, taking into account the latest valuation and prospective funding requirements for future service. |
| "As a result we have concluded that we should enter into a consultation process with current plan members and their representatives about proposals to close the Exel, Ocean and Tibbett & Britten defined benefit sections of the DHL Group Retirement Plan to future accrual and replace them with an attractive but sustainable alternative for future service." | "As a result we have concluded that we should enter into a consultation process with current plan members and their representatives about proposals to close the Exel, Ocean and Tibbett & Britten defined benefit sections of the DHL Group Retirement Plan to future accrual and replace them with an attractive but sustainable alternative for future service." |
| DHL refused to comment further on the decision. | DHL refused to comment further on the decision. |
| Mick Rix, a national officer at the GMB union, which represents DHL Supply Chain members, said: "We are very concerned regarding the company's proposal. As a union we will be participating fully in the consultation and trying to do our best for our members." | Mick Rix, a national officer at the GMB union, which represents DHL Supply Chain members, said: "We are very concerned regarding the company's proposal. As a union we will be participating fully in the consultation and trying to do our best for our members." |
| At the end of April financial services firm Axa said it was consulting on closing its scheme to existing members and experts predict many more firms will follow suit in the near future. | At the end of April financial services firm Axa said it was consulting on closing its scheme to existing members and experts predict many more firms will follow suit in the near future. |
| Tom McPhail, pensions expert at IFAs Hargreaves Lansdown, said he thought the introduction of the flat-rate pension would sound the "death knell for final salary schemes". | Tom McPhail, pensions expert at IFAs Hargreaves Lansdown, said he thought the introduction of the flat-rate pension would sound the "death knell for final salary schemes". |
| The change will mean the end of contracting out, whereby national insurance contributions can be diverted to the pension scheme, rather than paid to the government. | The change will mean the end of contracting out, whereby national insurance contributions can be diverted to the pension scheme, rather than paid to the government. |
| McPhail said: "At that point there probably won't be any private sector schemes open to future accrual, let alone new members." | McPhail said: "At that point there probably won't be any private sector schemes open to future accrual, let alone new members." |
| David Smith, wealth management director at BestInvest, said that "the death knell is sounding now", echoing McPhail's belief that the end of the second state pension would be the final nail in the coffin for these schemes. | David Smith, wealth management director at BestInvest, said that "the death knell is sounding now", echoing McPhail's belief that the end of the second state pension would be the final nail in the coffin for these schemes. |
| "I don't envisage that there will be many, if any, final salary schemes open to new employees post 2016," he said. "There will remain a number of 'closed' defined benefit schemes in existence and some schemes may even continue to accrue benefits for existing members. Ultimately these schemes are in run-off." | "I don't envisage that there will be many, if any, final salary schemes open to new employees post 2016," he said. "There will remain a number of 'closed' defined benefit schemes in existence and some schemes may even continue to accrue benefits for existing members. Ultimately these schemes are in run-off." |
| Ros Altman said "the future of final salary-type schemes is distinctly limited" and the end could come within five years. She said the environment for employers offering the schemes was "hostile". | Ros Altman said "the future of final salary-type schemes is distinctly limited" and the end could come within five years. She said the environment for employers offering the schemes was "hostile". |
| She added: "Once a scheme closes to new members, it is only a matter of time till it closes altogether. With new workers in a defined contribution scheme, while older workers have much better benefits, the employer will be creating significant differences in worker benefits, which will be perceived by newer employees as unfair." | She added: "Once a scheme closes to new members, it is only a matter of time till it closes altogether. With new workers in a defined contribution scheme, while older workers have much better benefits, the employer will be creating significant differences in worker benefits, which will be perceived by newer employees as unfair." |