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Friday 27th November 2009
More pension schemes set to close
Nearly a third of defined benefit pension schemes which have closed to new members plan to shut to existing ones during the coming five years, according to new research.
Only 23% of defined benefit schemes, including final salary pensions, are still open to new members, down from 28% a year ago, according to the National Association of Pension Funds (NAPF).
The group said the fall in schemes that remained open during the past 12 months was greater than during the past two years combined, as the recession took its toll on companies' ability to continue offering the gold-plated pensions.
Three out of 10 schemes that remain open to existing members plan to close their schemes completely during the coming five years, instead shifting staff on to less generous defined contribution schemes, while only 39% of companies said they remained committed to keeping their final salary schemes open.
The NAPF survey comes the day after Vodafone announced plans to close its final salary pension to existing members, joining other big firms that have made similar announcements during the past year, including Barclays and Morrisons.
Companies are increasingly finding their generous final salary pensions are too expensive to offer, replacing them with defined contribution schemes, under which employees bear all the risk of investment volatility and increased life expectancy.
The NAPF research showed that firms are continuing to pay more than twice as much into defined benefit schemes as they are into defined contribution ones.
An average of 19% of a member's pay is contributed to defined benefit schemes by sponsoring companies each year, with staff paying in 5.4%. But companies make average contributions of just 7.5% to defined contribution schemes, with workers paying in 4%.
There continues to be uncertainty among pension schemes about the impact of the Government's 2012 reforms, under which all workers will be automatically enrolled into a pension scheme, although they will retain the right to opt out.
Around 41% of companies said they would retain their pension scheme in its current form and auto-enrol their employees into it. But 8% said they were planning to reduce the contributions they made in 2012, and 10% said if their staff did not choose to join their existing scheme they would be auto-enrolled into Personal Accounts, into which companies have to contribute only 3%, with workers paying in 4% and the Government adding 1%. A further 13% of pension schemes are proposing other changes as a result of the new regulations, while 27% of schemes have yet to decide what action they will take.
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