More than three-quarters of employers with final salary pensions expect to face future funding difficulties, according to the latest annual survey from the National Association of Pension Funds (NAPF).
Ten per cent of final salary (or defined benefit) schemes in the private sector closed to new staff in 2004 compared to 26 per cent in 2003 and 19 per cent in 2002. The fall in the number of scheme closures comes despite rising costs to all employers, more than two-thirds of which increased their contributions to staff pension schemes to address funding pressures.
Only one in three members (34 per cent) of final salary schemes are ‘active’ (ie, still working for the employer), while 37 per cent are pensioners, and 29 per cent are deferred members who have left the employer, but retain rights under the pension scheme.
NAPF chief executive Christine Farnish said: “Today’s survey offers stark evidence of the risks and liabilities facing employers with defined benefit (DB) pension schemes. Even the most committed firms are now struggling to manage costs, and it seems that we are down to the bare bones of DB provision in the private sector.
“There are, of course, a number of reasons for this growing cost. Longer life expectancy and lower investment returns have obviously played a role.”
She said the Government did not emerge from the pensions crisis with any credit.
“Having burdened occupational pensions with an additional £5bn annually since 1997, the Government has compounded the problem by failing to boost incentives for scheme providers, failing to reduce red tape, and failing to offer any long-term vision for the future of pensions provision.
“The picture which emerges from today’s survey is one of firms struggling to maintain a commitment to providing decent pensions for their staff, while policy makers – far from supporting their efforts – impose further burdens. In imposing those burdens, they are threatening millions of tomorrow’s pensioners with the prospect of a breadline retirement.”
Key findings from the 30th NAPF Annual Survey include:
10 per cent of private sector final salary schemes in the sample closed to new members in 2004, compared to 26 per cent in 2003
71 per cent of private sector schemes have increased employer contributions to address funding pressures, with 41 per cent increasing employee contributions
Survey respondents reported 3.3 million actively contributing to final salary schemes, while the same schemes had 6.4 million deferred or retired members