The final salary pension scheme is in rapid decline after a quarter of major private sector firms revealed they would close their plans to existing members, research has found.
Some 25% of companies outlined plans to close the schemes to staff currently saving towards them over the next five years, in response to the economic crisis. A further 52% admitted they may close the schemes to new members, affecting about 1,000 final salary pensions in the UK, the survey by the National Association of Pensions Funds revealed.
Nearly all (96%) of the employers surveyed believed the economic crisis has made the closure of final salary or defined benefit schemes more likely.
NAPF chief executive Joanne Segars said: “With so many schemes set to close to new members and employee confidence in pensions evaporating, this is a now or never moment if we want to see defined benefit schemes remain a key part of the UK’s pension landscape.”
The final salary scheme, which provides a guarantee that an employee’s pension will be a certain amount and in line with minimum standards, may be tampered with by employers looking to save costs, the NAPF survey showed.
A NAPF statement said: “The survey shows that, over the last five months, the likelihood that employers will make changes to their scheme in the wake of the current economic environment has increased significantly.”
However, Nicola Bumpus, senior associate at law firm Pinsent Masons, said that companies should bear in mind that such changes were not always straightforward. “The attitude of the trustees of the pension scheme is critical, as it is very likely that the employer will need the agreement of the trustees before the pension scheme can be closed.”
NAPF called on the government to protect pension schemes in the current climate.
In 2007, experts were more optimistic that final salary schemes would make a comeback. However, the current economic turmoil has forced firms to look at new ways to cut costs, with pensions being among the first of employee benefits hit.