Britain's pensions crisis looks set to get even worse as a new survey finds that three-quarters of final salary pensions schemes are likely to face funding difficulties in future.
Research by the National Association of Pension Funds (NAPF) has found that the average long-term costs for employers with final salary pensions has risen from 15.7 per cent of an employee's salary in 2003 to 16.6 per cent this year, while for defined contribution (DC) schemes, the cost is 7.2 per cent of salary.
The survey of 422 companies representing over 1,000 workplace pension schemes found that 3.3 million people are actively contributing to final salary schemes, whilst the same schemes had 6.4 million deferred or retired members.
The NAPF also found that some seven out of 10 employers have increased their contributions in order to address funding pressures, while four out of 10 have increased employee contributions.
Although last year saw only 10 per cent of final salary schemes close to new staff compared with 26 per cent in 2003 and 19 per cent in 2002, NAPF chief executive Christine Farnish said that even the most firms committed to keeping generous final salary schemes are struggling to manage costs.
"Even the most committed firms are now struggling to manage costs, and it seems that we are down to the bare bones of DB [defined benefit] provision in the private sector," she said
"There are, of course, a number of reasons for this growing cost. Longer life expectancy and lower investment returns have obviously played a role."
But she added that the government's shambolic pensions policies were undermining company pension provision by burdening them with extra cost and regulation.
"The government does not emerge from this with any credit. Having burdened occupational pensions with an additional £5bn annual burden since 1997, it has compounded the problem by failing to boost incentives for scheme providers, failing to reduce red tape, and failing to offer any long term vision for the future of pension provision."
"The picture which emerges from today's survey is one of firms struggling to maintain a commitment to providing decent pensions for their staff, while policy makers - far from supporting their efforts - impose further burdens," she added.
Experts have warned that employers could face huge increases in contributions to meet new regulations. Pensions consultants Mercer recently estimated that even meeting current liabilities under the new regulations would cost employers with final salary schemes an additional £360bn.
Earlier this year, a shock survey by actuaries Towers Perrin found that almost a quarter of the UK's largest companies were considering abandoning occupational pensions altogether and offering employees cash instead.
And Farnish agreed that government policy was forcing more firms to close their schemes and threatening the benefits for those in schemes that have already closed.
"In imposing those burdens, they are threatening millions of tomorrow's pensioners with the prospect of a breadline retirement," she said.