The number of final salary workplace pension schemes in the UK has fallen dramatically over the last year, as hundreds of companies close the gold-plated retirement plans and move to cheaper schemes.
According to new figures from the Pension Protection Fund (PPF) and the Pensions Regulator, only 1,013 of the UK’s 6,400 final salary workplace schemes remain fully open to employees.
This is 200 schemes fewer than one year ago.
The reduction means that in the last 12 months alone around 400,000 fewer employees have access to the generous retirement plans.
The vast majority of the final salary retirement schemes run by companies have either been closed to new members, closed to existing members or are in the process of being wound up.
Companies are closing the schemes – which are also known as defined benefit schemes – because they are expensive to run.
Under defined benefit schemes, a person’s income in retirement is based on their final or average salary. The pensions are largely paid for by the company.
Firms are increasingly switching the retirement schemes they offer to cheaper so-called defined contribution schemes, in which payouts are based on contributions from both employer and employee.
Although defined contribution schemes are cheaper to run for companies they can also be less generous in what they pay out, meaning that members are likely to have a poorer retirement.
Recent companies to announce the closure of their final salary schemes include Shell, Unilever and Alliance Boots.
The figures are contained in the PPF’s so-called Purple Book, an annual snapshot of the UK’s final salary schemes.
According to the PPF, 3.73 million employees are currently members of fully-open final salary schemes, down from 4.1 million a year ago.
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), which represents pension schemes with 15 million members and assets of £800 billion, said that the new figures show the “relentless” closure of final salary schemes.
She said that an ageing population, too much red tape, and tough economic and investment environments are all responsible for this trend.
Ms Segars added that new regulation from Europe which will make it even more expensive to run final salary schemes could force more business to close their schemes.
She said: “Whatever the type of pension, the main thing is to get more people in the private sector saving. The UK simply isn’t salting enough away for its old age.”
Source : The Telegraph
By James Hall, Consumer Affairs Editor