25% of private sector firms expected to axe final salary pension schemes
A survey by the National Association of Pension Funds has revealed that a quarter of major private sector companies will close their doors to existing members in the next five years.
A final salary pension scheme is deemed attractive since it promises to pay a percentage of earnings on retirement and those who join believe they would receive a full pension for the rest of their lives.
However, many firms have said that their finances continue to deteriorate amid the credit crisis and a slump in its share prices making schemes too costly to finance.
Over 90% of Britain’s 5.8 million public sector workers have gold-plated pensions. However, the latest figures show that just a quarter of private sector final salary schemes are open to new workers.
Former chief executive of the Prudential, Mark Wood, who now heads the Paternoster pensions business, told the BBC it was ‘almost inevitable in the current economic crisis’ that people would be shut out of their final salary pension schemes.
He said the impact could be very dramatic depending on someone’s age and where they are in the career. Over the next few years the onus will be on personal responsibility rather than company responsibility.
People will have to take guidance on how much money to set aside. With low interest rates, the amount of money you need to pay into a pension is far greater than it was a year ago, added Mr Wood.
Figures show that employment in the public sector has grown significantly. Between 1998 and 2006, over 1.3 million of the 2.2 million jobs created were in the public sector.