5,000 final salary pension schemes disappear

by Gill Montia

Story link: 5,000 final salary pension schemes disappear

The Office of National Statistics has published a report that shows the number of active members of occupational pension schemes fell to 8.8 million in 2007, from 9.2 million in 2006 and 9.8 million in 2004.

Last year, the number of final salary schemes in existence declined by nearly 5,000 to 54,114. Of the schemes remaining, 53,801 were in the private sector.

However 3.6 million private sector employees were enrolled in such schemes, while for the public sector the figure stood at 5.2 million.

In 2007, contribution rates to defined benefit schemes rose, with employers contributing an average of 15%, compared with 14.8% in 2006.

Meanwhile, employees increased their contributions by 0.6% to 5.5%, on average.

Pension experts see the demise of the final salary pension scheme as inevitable and earlier this year, the National Association of Pension Funds forecast that the next five years would see more widespread closures, as result of increased longevity and poor investment returns.

However, the schemes are disappearing from the private sector rather than the public sector because closures are strongly opposed by trade unions and any decision to change public sector pension entitlement would have considerable political repercussions.

Most Government employees are in final salary schemes, which can provide two-thirds of a worker’s pay at the time of retirement, depending on length of service.

This has led to accusations that the UK is developing a form of pension “apartheid” with public sector schemes becoming an increasing burden for private sector taxpayers, the majority of whom have much less attractive retirement prospects that their public sector peers.