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Last Updated: Thursday, 11 October 2007, 10:47 GMT 11:47 UK
Gap widens between pension plans
A Royal Mail worker on strike in a north London sorting office
Postal staff are the latest to face the closure of their pension scheme
The gap between traditional final salary pension schemes and the "defined contribution" (DC) versions that often replace them, is growing, figures show.

The Office for National Statistics (ONS) says overall contributions to final salary schemes rose from 16.8% of salaries in 2004 to 19.2% in 2006.

But there was barely any change in contributions to DC schemes, at 8.9%.

The figures come from the ONS's annual survey of company pension schemes in the private sector for 2006.

"Contribution rates in 2006 to private sector open defined benefit schemes - those where the benefits are specified, usually related to final salary - were 4.9% for members and 14.2% for employers," said the ONS.

"For open private sector defined contribution schemes - also known as "money purchase" schemes - the contribution rate was 3% for members and 5.8% for employers," it added.

Regulation

One reason for the increased contributions to open final salary schemes is the new regulatory regime.

Since 2005 the Pensions Act has dictated that where schemes are in deficit, the employer and the scheme trustees must agree a plan to put in extra contributions with the aim of plugging the gap, usually within 10 years.

This has seen employers in the private sector forced to put in billions of pounds more each year.

That rising cost of funding pensions has, in turn, been a driving force behind the decision of many employers to close their final salary schemes, often to new joiners and sometimes even to existing employees.

Recently the Royal Mail became the latest and biggest employer so far to announce that it wants to close its current final salary pension scheme to existing staff.

Fewer schemes

According to the ONS, the number of schemes still open to new members dropped by 40% between 2000 and 2006, and most of the remaining open ones in the private sector were of the DC variety.

The number of people paying in to any sort of private sector scheme has dropped from 8.1m in 1967 to 6.5m in 1991 and then 4.4m last year.

Of these though, 3.3m workers were still paying in to final salary schemes, with just 1.1m contributing to the newer DC schemes.

Meanwhile public sector pension schemes had 5.1m members last year, an increase from 4.2m 1991, with the majority of schemes still of the final salary variety.



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