Page last updated at 08:29 GMT, Friday, 27 November 2009

More pension schemes will close in the coming years

Retired couple
More schemes will close in the next five years, the survey found

Many more pension schemes will close in the next five years, to both new and existing members, a report has said.

Just 23% of final-salary pension schemes in the private sector are still open to new joiners, the National Association of Pension Funds also said.

A year ago the figure stood at 28% but since then more schemes have closed, both to new members and existing ones.

The NAPF said the drop in the number of schemes that were still open was greater than in the previous two years.

Increasing trend

The annual survey found that 62% of pension schemes that were still open to new joiners expected to let their current members continue to build up more pension over the next five years.

But 18% expected to move both their new and existing members into defined contribution (DC) schemes.

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
Defined contribution scheme - investment fund, determined by contributions and investment returns, used to buy an annual pension. Also called a money purchase scheme

Even more change is in store for schemes already shut to new joiners.

Of these, 31% expect they will switch all their active members to a DC scheme for the future accrual of pension.

Last month, an annual survey of pension schemes conducted by the Office for National Statistics (ONS) revealed that the drop in the number of people paying into private sector final-salary pension schemes had slowed down in the past year.

The active membership of these schemes fell slightly to 2.6 million in 2008, down from 2.7 million in 2007 and from three million in 2006.

However, the ONS survey did not attempt to measure how many schemes remained open, either to new members or to just current employees.

More bonds needed

The past year has seen an increasing number of large, high profile, employers announcing the closure of their schemes to existing staff.

Typically they say this is a necessary measure to stop the cost of funding their schemes ballooning out of control.

The NAPF said a critical measure that could be taken to ease the funding pressure on schemes would be for the government to issue more long-term and inflated proofed bonds.

Its survey found that 82% of schemes would welcome this.

It said this would provide them with more investments that might offer greater certainty of generating the income needed to pay pensions in the future.

"The chancellor has a golden opportunity to make a difference in his pre-Budget report by announcing that the government will issue more long-dated and index-linked gilts," said Joanne Segars, chief executive of the NAPF.

"This single measure would benefit pension funds by helping to reduce deficits and support corporate scheme sponsors by reducing the scale of pension fund liabilities on their balance sheets," she added.

The NAPF's survey also found that despite the recession employers had not cut their contributions to their defined contribution (DC) schemes.

Joint staff and employer contribution rates were still 11.5% of salaries.

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