(December 15, 2011) — The number of businesses that have closed their final salary pensions to all of their staff is quickly growing.
According to the United Kingdom’s National Association of Pension Funds’ (NAPF) latest annual survey, almost a quarter (23%) of pension schemes are now shut to both new staff and to future contributions from people who were already in the pension. This is up by a third from 17% in 2010, and was just 3% in 2008.
The research by NAPF — which represents the biggest company pension schemes in the UK — reflects the decline of final salary pensions, which have been increasingly strained by rising longevity, poor investment results, and red tape, NAPF asserted in its study. As employers have been closing these pensions in an effort to manage risks and rising costs, only 19% of private sector schemes are now open to new joiners, compared with 88% a decade ago.
In response to the findings, Joanne Segars, NAPF Chief Executive, said in a statement: “The private sector is seeing a seismic shift in its pensions, and more change is certain. Final salary deals are coming off the table and are either being watered-down or replaced altogether,” noting that demographic and financial pressures mean businesses are struggling to afford these pensions.
Furthermore, Segars noted that while it is difficult to be exact, NAPF estimates that up to a quarter of a million people have been moved out of their final salary pension over the past three years as many firms are trying to get a grip on risks and rising costs by freezing the fund to both new and existing staff.
“People will often find that the replacement pension on offer is a good one,” Segars said in a release. “It’s encouraging to see that, despite the harsh economic climate, payments into defined contribution pensions by staff and their employers have remained stable. Whatever the type of pension, the main thing is to get more people saving. The UK simply isn’t salting enough away for its old age.”