25% of private sector final salary pension schemes could shut

23 January 2009 / by Rachel Mason
Up to a quarter of private sector final salary pension schemes could be closed to existing members over the next five years.

A survey of 100 firms released today by the National Association of Pensions Funds (NAPF) revealed that as many as 25 of them may be forced to close their final salary pensions to existing employees over the next five years in order to cut costs.

There are currently around 8,500 private sector final salary pension schemes in the UK, and most have already shut to new members; of those that are still open to new employees, 52 per cent are expected to close to new members and 24 per cent are expected to close to both new and existing members.

When a final salary scheme closes, members are generally told they can no longer contribute and should pay into another pension scheme and this saves the firm money.

NAPF Chief Executive, Joanne Segars says that the Government needs to take radical action and provide the same bold approach to the pensions sector as it has given to others such as banking and small business.

She said "These exceptional times call for exceptional measures and new thinking. We have seen bold action from the Government in response to the crisis in other key areas and similar action is now needed for the UK's pension schemes.

"With so many schemes set to close to new members and employee confidence in pensions evaporating, this is a now or never moment if we want to see defined benefit schemes remain a key part of the UK's pension landscape."

On the BBC's News at 10 last night, investments expert Ros Altman, a former government adviser said the results mark "the death knell for the final salary pension scheme" because employers "cannot afford to fund this long-term commitment any more."

While Mark Wood head of the Paternoster pensions business and former UK chief executive of the Prudential said that the news that more people will be losing final salary schemes was "almost inevitable in the current economic crisis" arguing that over the next few years, the onus will be on personal rather than company 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," he said.

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