Only 13% of such schemes were open to new joiners last year, which is down from 19% in 2011, according to survey
Final salary pensions in the private sector have closed their doors to new staff at the fastest rate on record, according to the National Association of Pension Funds (NAPF).
Just 13% of final salary pensions were open to new joiners in 2012, a drop of a third from 19% in 2011, and the steepest fall since comparable data began in 2005, when 43% were open.
Almost half of companies still offering final salary schemes to new staff said they were planning to close them, and offer them a defined contribution pension instead, where the retirement income is based on how the stock market performs.
Final salary schemes aren’t just closing their doors to new members, but in some cases to workers who are already in them, the NAPF found. The number that shut their doors to existing staff climbed to 31% in 2012, a hike of more than a third from 23% in 2011.
The schemes, which offer a guaranteed payout, based on an employee’s earnings rather than the investment performance of the scheme, have long been under pressure from rising longevity and poor investment returns, with many companies facing huge liabilities.
But the NAPF blamed the Bank of England’s quantitative easing programme and low gilt yields for prompting a barrage of fresh closures.
On a brighter note, the survey found that total contributions from both employers and employees into the newer type of defined contribution pensions – which pay a pension based on how well the investments have performed – edged to an all-time high of 12.5% of salary in 2012 .
The NAPF’s chief executive, Joanne Segars, said: “Those starting a new job in the private sector have next to no chance of getting a final salary pension. What was once the norm is now a very rare offer. And those who are currently saving into one may find it gets closed.”
The NAPF said that while final salary pension schemes are now largely confined to the public sector, they are not entirely finished in the private sector. More than 2 million workers are still saving into one and they pay the pensions of more than 4 million pensioners.
In the public sector, the NAPF found that schemes such as the Local Government Pension Scheme are seeing higher opt out rates, as workers find new contribution levels too onerous at a time of pay freezes.
The NAPF annual survey, now in its 38th year, covered a total of 1,018 pensions with 9 million members and £628bn.
The survey also found that less than 10p in every £1 of pension fund assets is now invested in shares in UK companies. The proportion of total assets invested in UK equities fell from 12.2% in 2011 to 9.9% in 2012. Meanwhile, the allocation to corporate bonds rose from 12.4% in 2011 to 15.1% in 2012.
The costs of running a final salary pension in the private and public sectors also rose in some areas. Mean costs for fund management and custody increased from £170 per member in 2011 to £186 in 2012. Fees to consultants increased from £98 last year to £116.