The end for final salary pension schemes
by Kay Murchie
A report has been issued by The Association of Consulting Actuaries (ACA) declaring that as many as 8 out of 10 final salary pension schemes have closed to new members. On top of this, the amount of schemes which are closed to contributions has risen by 40% since 2005.
Schemes are being closed by employers because they are considered costly and high risk. The average amount paid into a final salary scheme by companies is 16.4% of earnings with another 4.6% by the member – a total of 21%.
Whilst this action has reduced deficits in many final salary pension schemes, contributions into schemes by employers has nearly doubled in the past 5 years, from 11.5% of staff pay to 22.6%.
By 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 young or middle aged.
However, over a longer period of time, this will only affect the millions of people with pension entitlements that are inadequate for a secure retirement. A spokesperson for the ACA thinks that the government should do something now about creating incentives for workers who wish to save for their future.
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