Demise of end salary pension schemes
by Gill Montia
Story link: Demise of end salary pension schemes
The Association of Consulting Actuaries (ACA) has issued a report stating that at least eight out of 10 final salary pension schemes have closed to new joiners.
In addition, the number of schemes which are closed to contributions from members has increased 40%, since 2005.
Employers are closing the schemes because they are regarded as high risk and costly.
In the survey by the ACA, two-thirds of employers reported that they had paid lump sums into their staff pension schemes in order to reduce a shortfall between assets and liabilities.
Whilst this action has reduced deficits in many final salary pension schemes, contributions into schemes by employers has nearly doubled in past five years, from 11.5% of staff pay to 22.6%.
Final salary pension schemes are treasured by employees as they guarantee a retirement income based on a combination of final salary and length of service.
However, in improving the financial health of many schemes and protecting the rights of existing members, employers are downgrading the pension prospects for other workers, particularly those who are middle aged or young.
In the longer-term this will only add to the growing prospect of million of people holding pension entitlements that are insufficient for a comfortable old age and Ian Farr, chairman of ACA, believes that the government should act now to increase incentives for workers looking to save for their retirement.