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Final salary pensions under threat as schemes close

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02/05/2007

Final salary schemes for the UK’s 23 million private sector workers could virtually disappear within four years, according to Hargreaves Lansdown, an independent financial advice company.

Around half of the firms that offer final salary schemes – pensions that typically pay around a third of the value of an employee’s final salary – are on the point of axing them as they are becoming too expensive to run.

The closures will affect existing staff, who will be transferred to money-purchase schemes, where a worker’s contributions are invested in the markets with no guarantees of a set final return for the contributor’s money.

Rentokil, the pest control and hygiene firm, became the first FTSE 100 company to shut its final salary pension scheme to workers in December 2005. Others, like retailer Debenhams, have revealed that they are switching to money purchase plans.

Final salary schemes are expensive for firms to run and with many people living longer than ever before they are regarded as prohibitive by many firms.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “Final salary schemes have become the albatross around employers’ necks. Their continued decline is inevitable.”

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