End nigh for final salary scheme
WORKERS received a dire warning today that every final salary pension scheme in Britain will close within the next five years, as employers look to free themselves from the high cost of the schemes.
The National Association of Pension Funds, the country's most influential pensions body, will outline the industry's fears to Pensions Secretary David Blunkett today at a pensions summit in London's Docklands.
Amid increasing fears of a pensions crisis, Blunkett was expected to tell industry leaders that the Government has not ruled out changing the law to automatically enrol workers in their employer's scheme.
Three-quarters of occupational schemes are already closed to new employees, who are now only offered less favourable money-purchase schemes.
But NAPF warns that existing members of the schemes would soon be told that they are being switched to money-purchase schemes, where fund growth is dependent on the success of the stock market.
NAPF chief executive Christine Farnish said: 'A disproportionate amount of cost and risk in the pension system is now on employers' shoulders. Over the years, successive governments have increased the amount of responsibility and the level of benefits employers are expected to provide through occupational schemes.'
She added employers are finding the schemes unsustainable going forward. For example, the hole in British Airways' pension scheme is larger than the value of the company.
'The majority of schemes in the private sector are now closed to new members. The next big wave of change will be closure of these schemes to existing members,' said Farnish.
She added the cost of the Pension Protection Fund and risks of future levy increases would hasten a further wave of change.
In some cases, employers would be unable to make the switch to money-purchase schemes without the agreement of members, because of the rules under which the schemes are set up or the details of employees' contracts.
However, in the majority of cases they will be able to make the switch without the need to consult.
