Closures of private sector final-salary pension schemes continued to accelerate throughout 2012, a study from the National Association of Pension Funds (NAPF) has found.
According to their findings from an annual survey of 1,018 schemes and 280 private sector firms, there has been a marked increase in companies cancelling, or freezing their final-salary pension option.
The survey reveals that only 13% of final-salary pension schemes are open to new employees, this is down on the 19% recorded in the previous year.
Observers say that the trend seems irreversible and likely to increase in the immediate future. A statement from the NAPF reaffirms the forecast, which said that new employees joining the private sector have ‘next to no chance’ of opening a private sector pension.
However, the change does not just affect those entering the private sector, it also impacts on those currently working within it. The latest figures reveal that some final-salary schemes are now closing to existing staff.
The NAPF cites the Government’s policy of quantitative easing as a major factor in the closure of so many schemes.
In an attempt to avoid further recession the government has provided the UK banking system with access to cheap money. This has seen the bank of England picking up a third of government bonds.
This however has raised the price of those bonds, resulting in a reduction of the potential returns offered to investors. Many final salary pension funds are heavily invested in givernment bonds.
It is this, the NAPF has argued that has caused the rise in fresh closures. With pension schemes now requiring a greatly increased stock of assets to provide the same level payment in the future.
In a statement the NAPF said that:
"The higher liabilities created by quantitative easing and low gilt yields have prompted a barrage of fresh closures,"
With the introduction of the government lead, automatic-enrollment pension scheme, it is predicted that many employers will phase out their existing final-salary and favor the new direct contribution option. Whether this will provide a comparable level of retirement income is still under debate, although the generous final-salary schemes do look as though they are already a thing of the past.
The NAPF predicts that one third of existing final-salary schemes that are still open will be changed. This will either mean closure to further contributions, or having a reduction in the benefits offered in an attempt to make them more cost effective for the employer.
Despite the government saying that the intend to ‘tweak’ the rules of quantitative easing with regards to their effect on the pension schemes, the NAPF fears that such an attempt may already be “too little, too late”.