Final-salary pensions extinct in five years

Dec 20 2006 by Nic Paton Print This Article

Final-salary pensions are becoming an increasingly rare benefit in British workplaces and could be all-but extinct in the private sector within five years, specialists have predicted.

Statistics from the UK's Pensions Regulator the Pension Protection Fund have shown that more than half Ė 58 per cent Ė of final salary schemes are now closed to new members.

An estimated 150 British firms have closed their final salary schemes to new members in the past year, and some are even shifting existing members into cheaper defined contribution schemes, which are more at risk to the vagaries of the stock market.

The regulator warned of a "significant evidence of a trend" for bosses to decide that their final-salary schemes are too expensive.

Tom McPhail, head of pensions at the financial adviser Hargreaves Lansdown, told the Daily Mail newspaper that it was all too clear when things were leading.

"There is an overwhelming sense of inevitability. If you could fast-forward another five years, there will be hardly any final-salary schemes left in the private sector," he said.

The statistics, contained in what is known as the regulator's Purple Book, have also made it clear that what final-salary schemes remain are becoming less generous.

One common tactic was to force workers to pay more into their pension every month in a bid to cut costs.

"One of the few ways the cost of past service benefits can be reduced is by removing the link to earnings at retirement," it added. The report studies 5,800 final-salary pension schemes, about half of the total left in the UK.

Together they had 12.6million members, although just one in four of these were "active" current workers.

The rest were either pensioners or ex-employees who had left the firm for another job, it found.