The Week Unzipped: Final-pay pensions to close

Published on Saturday 22 August 2009 19:00

HALF all final-salary pensions in the private sector will have closed by 2012, according to a survey by actuaries Watson Wyatt. More than one million employees currently saving for their retirement through a final-salary scheme may be forced to join an alternative pension plan within the next three years.

About 75 per cent of final-salary schemes are closed to new recruits, while only nine per cent are shut to long-serving staff. But this trend is expected to change sharply following a number of closures announced this year, including Barclays, IBM and Morrisons.

Rash Bhabra of Watson Wyatt warns the number of schemes closing to existing staff could accelerate rapidly. The Pension Protection Fund calculated the collective deficit to be 158 billion.

There was good news on the pensions front, however, following a bounce-back by the UK's investment-based money purchase schemes. The funds have recovered their pre-recession level of 450bn after dipping to 344bn in March this year. A 60-year-old worker, fully invested in equities, has seen their projected pension rise from 10,373 in June to 11,384 in July.

Home loans rise

Mortgage lending grew 26 per cent to 16 billion in July, although it remains 36 per cent down on a year ago, according to new data from the Council of Mortgage Lenders. A spokesman said: "This is further evidence of a modest improvement in the market over the summer after an exceptionally weak winter. However, activity is still subdued."

Interest rate up

National Savings and Investments has increased the interest rates on its Savings Certificates, Children's Bonus Bonds and Direct Isa by up to 1.20 per cent. Tax-free certificates will now pay 1.25 per cent fixed for two years. Over five years, they will pay 2.25 per cent. Children's Bonus Bonds will return 2.5 per cent, as will tax-free Isas.

Decision time

Aviva is extending until 21 September the deadline for its 215,000 policyholders to decide whether to accept the offer of between 200 and 1000 in exchange for relinquishing any future claim on surplus assets. Those who vote not to accept the offer, or who do not vote at all, will keep their entitlement to any future redistribution of the surplus funds.