Employers issue pensions warning

Employers have been paying more money into schemes

More than three out of four firms with final salary pension schemes expect to find it difficult to fund them in future, an industry survey has said.

The National Association of Pension Funds (NAPF) survey said that the cost to employers of funding workplace pensions is rising.

However, the rate of final salary schemes closing to new employees has slowed during the past year.

One in 10 schemes closed to new workers in 2004, compared with 26% in 2003.

Even the most committed firms are now struggling to manage costs Christine Farnish, National Association of Pension Funds

The NAPF represents employer-sponsored pension schemes and its annual survey is a key barometer of UK workplace retirement provision.

Rising costs

Recent surveys have shown an exodus of firms from final salary pension schemes in response to rising funding costs.

Firms have been replacing final salary schemes - which guarantee an income in retirement based on length of service - with money purchase schemes.

Under money purchase arrangements, firms only guarantee how much they will pay into a worker's pension and not how much the pension will be worth in retirement.

The NAPF survey indicated that the cost of funding a final salary pension has increased from 15.7% of a worker's salary in 2003 to 16.6%.

"Even the most committed firms are now struggling to manage costs. There are, of course, a number of reasons for this growing cost," said NAPF chief executive Christine Farnish.

"Longer life expectancy and lower investment returns have obviously played a role."