Pension scheme membership falls

Changes to pension schemes continue to be very controversial

The number of people paying into final salary pension schemes in the private sector fell again last year, the Office for National Statistics has said.

The number of active members dropped from three million in 2006 to 2.7 million in 2007.

However, membership of final salary schemes in the public sector rose slightly to 5.2 million.

Overall, 8.8 million people paid into employer schemes of all types last year, down from 9.2 million in 2006.

These included both the private and public sector, and people paying into money purchase schemes as well as final salary arrangements.

The ONS found that only 57% of final salary scheme members in the private sector were in schemes still open to new joiners.

The figures, from the ONS's annual survey of occupational pension scheme provision, highlight the continuing decline of final salary schemes.

Money purchase

The number of people paying into private sector money purchase schemes was unchanged in 2007 at just 900,000.

PENSION SCHEMES EXPLAINED Occupational scheme - one organised by an employer Active member - a worker making contributions Final salary scheme - guaranteed pension based on earnings at end of career and length of service Money purchase scheme - investment fund, determined by contributions and investment returns, used to buy an annual pension

But the ONS survey's findings indicate how these schemes, which are often the only type on offer to new recruits, are generally a far poorer option than the final salary schemes they have usually replaced.

Whereas final salary schemes had average contribution rates of 4.9% from members and 15.6% from employers, money purchase schemes had an average contribution rate of just 2.7% from staff and 6.5% from employers.

In addition, the average contribution rate from staff in money purchase schemes that were open - the vast majority - actually fell last year, from 3% to 2.6%, while employer contributions rose from 5.9% to 6.4%.

Only 23% of active members of money purchase schemes saw either their own or their employers contributions rise in 2007, as against nearly half of members of final salary schemes.

Fewer schemes

In 2007 there were just over 54,000 company pension schemes in the UK - both final salary and money purchase.

Employers are still continuing to close final salary schemes to new members, and even existing members, on the grounds that they are too expensive to finance.

Despite the huge wave of pension scheme closures seen in the UK in the past decade or so, nearly 29,000 schemes of all types were still open to new members last year.

That was partly a result of the growth of money purchase schemes, which are typically introduced instead of final salary arrangements, and which are mostly still open.

The ONS figures indicate that a significant cause of changes to a pension scheme has been the insolvency of an employer.

In 2007, 1,780 company schemes were in the process of winding up.

They covered nearly 307,000 pensioners or deferred members - people who were no longer paying in but had yet to retire.

And in three quarters of these schemes the employer had gone bust.

Large and small

Membership of company pension schemes continues to be concentrated in a few very large ones.

Last year 80% of active members were in schemes with 10,000 members or more. But such schemes account for less than 1% of the total.

By contrast, only 1% of active members were in very small schemes - those with between just two and 11 members. However, there were 44,370 of such schemes.

Of these, 85% were money purchase arrangements, and 60% were for the exclusive benefit of directors or other senior employees.

While the number of schemes in the public sector was stable at 310, the number that were still open to new members halved between 2004 and 2007, from 260 to 130.