If the gloomiest predictions come true, then 2007 will see more final-salary pension schemes closed, not only to new members but increasingly to current ones as well.
By Ian Pollock
Personal finance reporter, BBC News
Rentokil closed its pension scheme even to existing staff in 2006
In the past few months, disparate employers such as ITV, the Royal College of Nursing, Debenhams and the insurance broker Jardine Lloyd Thompson have joined the likes of Rentokil, Harrods and the Co-op retail group in doing just this.
They are, for the moment, very much in a minority.
The Pensions Regulator and the Pension Protection Fund (PPF) revealed this month that as of 31 March 2006, only 3% of final salary schemes were closed to all active members.
But some in the pensions industry think that trend will accelerate sharply.
The actuarial firm Lane, Clark & Peacock has predicted that by 2012, most of the biggest employers in the private sector will have closed their pension schemes to current contributors.
Deficits may still rise
From the point of view of an employer, the whole point of closing a scheme to new joiners has been to stop the cost of providing pensions getting ever larger.
Among the factors driving up the costs has been the increased longevity of the population and the need to make full contributions, after many years in which employers (and staff) enjoyed a partial or total contributions "holiday".
The personnel consultancy Towers Perrin surveyed 170 companies in November and found that typically, they pay between 15% and 20% of staff salaries into their schemes.
But when they replace them with "money purchase" pension funds, the employer contribution rate is often slashed to as little as 7%.
Yet as companies like BT and BA have discovered, even when a scheme has been closed to new members for several years, a deficit can still balloon suddenly.
After its regular three-yearly valuation, BA was told in the autumn that its pension fund deficit had more than doubled to £2.1bn.
And the BT scheme's actuary has just decreed that the deficit has now risen from £2.1bn to £3.4bn.
So, from an employer's point of view, closing simply to new members may not have the desired effect.
Stephen Yeo of the actuaries Watson Wyatt says the trickle of closures to existing members will grow.
"That's one pressure that will lead some schemes to close to new accrual - deficits have stayed stubbornly high," he said.
Thanks to the new laws being overseen by the Pensions Regulator and the PPF, employers and scheme trustees are obliged to put a recovery programme in place if they are told their scheme has a deficit.
Partha Dasgupta of the PPF says more schemes will be rescued
This means promising to inject enough money, ideally within 10 years, to eliminate it.
One very important feature that will be scrutinised, and which the Regulator has already warned about, is the wide variation in the life expectancy assumptions used by schemes.
"We are a bit worried about this, especially when you take into account the fact that every extra year that a pensioner lives adds about another 3% to the cost of providing their pension," said Charlie Massey, an executive director at the Pensions Regulator.
A recovery plan to get rid of a deficit is excellent news if your employer is both big and solvent.
But what if your employer is small or barely solvent, or both?
According to the Pensions Regulator and the PPF, the potential insolvency of an employer is the single biggest risk that a pension scheme can face.
In their recently published survey - called the Purple Book - they looked at nearly 5,800 schemes, as of March 2006.
These accounted for 85% of both the liabilities and membership of defined benefit (mainly final salary) pension schemes in the private sector.
Most, thankfully, had employers judged to be at the lowest risk of going bust in the next year.
But at the other end of the spectrum, 110 schemes both had assets that were less than 75% of those needed to provide the level of pensions that the PPF's safety net will offer, and were also at the highest risk of seeing their employer go bust.
Where the risk lies
The schemes judged to be at most risk were all very small, with just 24,000 active, deferred and retired members between them.
The Purple Book's analysis suggests that they are concentrated mainly in two industrial sectors - manufacturing and finance.
The relatively dicey position of pension schemes attached to manufacturing firms can be explained by the long-term decline of that sector and the finances of the companies in it.
Schemes attached to finance, insurance and property firms appear to carry a high risk because of their relatively large deficits, even though the companies themselves have only a moderate risk of going bust.
All this is illustrated by a quick look at the schemes that have applied to be bailed out by the PPF since the start of the current financial year.
The list, on the PPF web site, shows that 85 have applied for protection in the past nine months.
The names recall a long gone era of British industry like the Precision Grinding Pension and Life Assurance Scheme, Metal Castings Group Pension Scheme and the Carborundum Abrasives Pension Scheme.
Other more well known names are those of the Allders department store, the T&N engineering company, the AP car parts group and Pittards Leather.
Partha Dasgupta, chief executive of the PPF, expects a similar flow this coming year.
"The insolvency rate for the UK at the moment is that 0.7% of companies go bust each year," he pointed out.
"We will have a stream of small companies coming to the PPF, about 80 per year.
"But companies generally are taking action to reduce deficits," he said.
Government-inspired change will affect big public sector pension schemes in 2007 and 2008.
As well as some alterations to the benefits for current members, revised schemes have been proposed for new recruits to the NHS, teaching, the fire service and local government.
The common theme running through the plans is that new staff will have to work longer before they can retire on a full pension.
The main reason for this is that the government wants to offset the steady improvement in people's lifespans, something which shows no sign yet of slowing down.
One intriguing way of addressing this issue has been included in the employers' proposals for the massive local government scheme, which has around 1.7 million contributors.
Unlike most public service schemes, it is funded out of investment rather than taxpayers' money.
Terry Edwards, head of pensions for the local government employers, said the idea was to share with staff the risk of pension costs rising in the future.
"There are two basic risks - one of the investments and one of people living longer," he said.
Thus if there is a shortfall of funding due to underperforming investments, the idea is that employers would pay higher contributions.
But if rising costs were due to people living longer, then that would be paid for by higher contributions from the staff.
The trend for both public and private employers to try to cap their pension liabilities has seen one of the biggest shifts yet in the distribution of wealth between workers and their employers.
That trend looks very likely to continue.