Rate of pension closures slowing

The pensions crisis is not easing, experts say

The rate at which final salary pension schemes are closing to new members slowed dramatically in the 2004-2005 tax year, official figures have shown.

A total of 83 final salary schemes closed to new members that year, the Pensions Regulator said, compared with 126 and 242 in the previous two years.

A further 70 pension schemes started to wind up, the lowest number since 1998.

Experts said the falls reflected the fact that many employers had already closed or wound up their schemes.

Expensive schemes

According to the Pensions Regulator, previously called the Occupational Pensions Regulatory Authority, there are nearly 10,000 active final salary schemes in the UK.

Final salary schemes are considered the most lucrative form of workplace pension provision.

FINAL SALARY SCHEMES CLOSING TO NEW MEMBERS 1999-2000 116 closures 2000-2001 162 closures 2001-2002 238 closures 2002-2003 242 closures 2003-2004 126 closures 2004-2005 83 closures Source: The Pensions Regulator

Final salary pensions offer employees a fixed percentage of their salary when they retire, but they can be expensive for employers.

Mounting costs combined with stockmarket underperformance has, in recent years, prompted many employers to close the schemes to new members.

An estimated two-thirds of final salary schemes are now closed to new members.

The fact that the rate of closure is now slowing is not a cause for celebration according to pension experts.

"The rate of closure may be slowing but this merely reflects the fact that many employers have already taken the step," Malcolm McLean chief executive of the Pensions Advisory Service, told BBC News.

"This is not a sign that UK's pension problems are easing, employers are still finding it incredibly difficult to fund schemes," he added.

FINAL SALARY SCHEMES WINDING-UP 1999-2000 627 wind-ups 2000-2001 317 wind-ups 2001-2002 293 wind-ups 2002-2003 219 wind ups 2003-2004 128 wind-ups 2004-2005 70 wind-ups Source: The Pensions Regulator

Wind-up costs

Recent pension legislation may account for the sharp drop in the number of schemes being wound up.

Pension wind-up is the process by which a scheme shuts completely and its assets are used to buy retirement income for members.

Under the law, if a solvent company wants to wind up a final salary scheme it has to ensure that the pensions promised to all scheme members are paid.

Before this law was passed, solvent employers were free to wind-up a scheme even when it meant that there would not be enough cash to meet pension promises.

The number of schemes being wound up has fallen by two-thirds since the legislation passed.

"It is now very expensive for a solvent employer to wind-up its pension scheme and this accounts for the fall in wind-ups" Mr McLean said.