Members face shut-downs of more final salary pension plans, says CBI

Published on Sunday 6 December 2009 19:53

THOUSANDS of private-sector employees who have been paying into final-salary pension schemes are likely to be forced on to defined contribution plans, a report from the Confederation of British Industry (CBI) warns today.

Eight out of ten company directors admitted to the CBI that final-salary schemes are likely to be closed to existing members over the next few years as burgeoning deficits hinder competitiveness.

The report, produced with Watson Wyatt, says many firms are unable to restructure and prepare for an economic recovery due to concerns over their widening pension deficits.

Although most private-sector final-salary pension schemes were closed to new members earlier this decade, a rising number of companies are seeking to change terms for existing members.

Last week, Lloyds Banking Group unveiled plans to cap the level of pay increases that can be counted towards final-salary pensions to 2 per cent or the rate of inflation, depending on which is the lowest figure.

According to the CBI, 73 per cent of UK businesses fear they will have to increase payments to fund final-salary schemes even though most are now shut.

John Cridland, deputy-general of the CBI, said firms are not shying away from obligations towards pension schemes, but they need to ensure they are in a fit state to take advantage of the recovery.

He added: "The high and unpredictable cost of running final-salary pensions is having far-reaching and damaging effects on UK competitiveness and the wider economy. This survey clearly shows that more and more companies are making changes to these legacy schemes.

"The current regulation of final-salary schemes is obstructing business reorganisation, often without making pensions any safer. In a recession it is vital that firms are able to restructure and realign to strengthen the business and prepare for future growth."

Aon Consulting predicts that the UK's 200 biggest final-salary schemes will have to be bolstered by 15 billion over and above regular payments to shrink deficits to zero over the next seven years.

Brewin Dolphin, the fund management firm, is today calling on Chancellor Alistair Darling to restore the dividend tax credit in the Pre-Budget Report on Wednesday to tackle Britain's "catastrophic" pensions black hole.

The Pension Protection Fund estimated that the shortfall in the UK's 7,400 final-salary schemes stood at 179.3bn at the end of May. Brewin Dolphin argues that the pensions crisis will place an "insurmountable burden" on the already weak public finances.

Jamie Matheson, executive chairman of Brewin Dolphin, said: "The pension hole is the biggest fiscal disaster facing Brit-ain over the coming decades."