The number of employers to have shut their final-salary schemes to all workers has soared by a third in 2011, according to a benchmark report out today.
Almost a quarter of final-salary schemes are now shut to both new and existing staff, up from 17 per cent last year and compared with just 3 per cent in 2008, new figures from the National Association of Pension Funds (NAPF) show. Less than a fifth of private sector final-salary arrangements are open to new employees, down from 88 per cent a decade ago.
The NAPF’s annual survey also revealed that three in ten firms with final-salary schemes still open to existing staff plan to close them in the next five years.
And it warned that more closures are inevitable as employers wrestle with growing demographic and funding pressures.
Joanne Segars, chief executive of the NAPF, said: “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.
“Many firms are trying to get a grip on the risks and rising costs by freezing the fund to both new and existing staff.”
Of the few firms that do plan to continue providing final-salary pensions, one in ten intends to make them less generous, with some moving to the career average earnings structure proposed for the public sector.
Graeme Mitchell, managing director at Lowland Financial in Galashiels, believes final-salary pensions in the private sector are heading for extinction.
“I imagine very few existing schemes are not underfunded and either hoping for an improvement in markets, encouraging people to leave the scheme or planning to close it altogether. The nails are in the coffin and private sector final-salary pensions are on the way out, sadly.”
Up to a quarter of a million private sector workers have been moved out of their final-salary pension over the last three years alone, according to the NAPF. The majority have been shifted into defined-contribution (money purchase) schemes, where returns depend on contributions and investment performance.
Segars said: “People will often find that the replacement pension on offer is a good one. It’s encouraging to see that, despite the harsh economic climate, payments into defined-contribution pensions by staff and their employers have remained stable.”
But the NAPF’s latest report comes just days after consultants Mercer revealed that employer payments to defined-contribution pensions has stalled after ten successive years of growth, while average member contributions have plunged from 4.6 to 4.2 per cent in the past year.