Staff shut out of their final salary pensions at record rate

A record number of final salary pension schemes have closed their doors to future contributions from existing members, the National Association of Pension Funds (NAPF) revealed today.

The NAPF’s latest Annual Survey showed that one in five (17%) schemes have shut their pension to both new and existing members. This was a record jump from 7% in the previous survey in 2009, and just 3% in 2008.

The findings point towards a new phase in the decline of final salary (defined benefit) pensions, as schemes that have already closed to new joiners now look to make restrictions on existing members.

Over the past decade, final salary pensions have come under huge pressures due to rising longevity, poor market returns, and red tape. Just 21% of private sector schemes are now open to new joiners, compared with 88% ten years ago.

The latest NAPF Annual Survey, run in late 2010, shows that further rapid change is on the cards. A third (33%) of schemes are planning changes around their existing members, including cutting benefits or migrating staff to a defined contribution pension.

On the day that the NAPF’s annual Investment Conference opens in Edinburgh, Joanne Segars, NAPF Chief Executive, said:

“The pressures on final salary pensions are relentless, and their rate of decline seems to be shifting into a new gear. The rate of closures to new staff seems to have levelled off, but now those who are already in a final salary pension increasingly find themselves being locked out.

“Many people will feel aggrieved that they can no longer build their final salary pension up. The alternative on offer could still provide a good retirement, but only if contributions are set at the right level.

“The Government has made an important and welcome commitment to ‘reinvigorate occupational pensions’. The results from this survey show there is no time to waste in developing solutions that will support schemes, their trustees, sponsors and members.

“Without action now on workplace pensions – and state pension reform – future generations of pensioners will face a poor and uncertain old age”.

The survey also showed a marked ‘flight to safety’ in the investment choices made by pension funds as they moved away from equities into gilts and other asset classes. The overall share of investment in UK index-linked gilts rose from 7.9% in 2009 to 12.3% in 2010, while pension funds’ investment in equities fell by a quarter between 2005 and 2010. This underlines the need for the Government to increase its issuance of long-dated gilts.

Asked about the upcoming 2012 auto-enrolment reforms, 51% said they would auto-enrol their existing employees into existing pension schemes at current contribution rates, but 9% said they were planning to cut contributions and ‘level down’ to the 2012 minimum.

The average combined employer and employee contribution to defined contribution pension schemes rose from 11.5% in 2009 to 12% in 2010. The proportion of contract-based DC pensions outnumbered that of trust-based DC for the first time in the history of the survey, meaning that the majority of DC schemes no longer have the oversight of trustees, and are administered directly by a pensions provider or insurer.

The NAPF has set out its manifesto to improve retirement saving. Measures included ensuring there was a decent foundation pensions which guaranteed everyone an income above means tested benefits; sensibly and proportionally regulated workplace pensions; ensuring better value for money for savers through the creation of new super trusts.

 

Notes to Editors:
1.Joanne Segars, NAPF Chief Executive, is available for interview.
2. The NAPF is the leading voice of workplace pensions in the UK. It speaks for 1,200 pension schemes with some 15 million members and assets of around £800 billion. Its membership also covers around four million people with public sector pensions.
3. The NAPF’s Annual Survey is an authoritative snapshot of the state of UK pensions.NAPF fund members were invited to take part in an online survey between 8 October and 9 November 2010. 292 members responded to some or all of the survey, representing 2043 pension schemes. Private sector defined benefit schemes covered by the Survey had 4.5m members with total assets under management of £360bn. This is more than a third of assets captured by the PPF Index.
4. The NAPF’s Annual Investment Conference opens today in Edinburgh. A full programme can be seen here: www.napf.co.uk/Conferences_and_Seminars/Investment_Conference/Programme.aspx

 

Paul Platt, Head of Media, NAPF, 020 7601 1717 or 07917 506 683, [email protected]

Christian Zarro, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, [email protected]