Pensions in Terminal Decline

Approximately half of the UK's defined benefit (DB) pension schemes, where the recipient receives a pension based on a percentage of his termination salary, will close within five years.

That is the finding of the Alexander Forbes Financial Services' second pension confidence survey.

Approximately 46% of employers, who currently provide final salary schemes, do not expect to be able to afford to provide them within the next five years. The DB pensions will morph into defined contribution schemes.

The respondents cited the cost of meeting the requirements of the Pension Act 2004, including making provisions for Pension Protection Fund (PPF) levies to cover final salary schemes at companies that have gone bust, and Scheme Specific Funding which introduced tiered contributions to meet deficits.

Less than half of the schemes surveyed believed that the introduction of the PPF and Scheme Specific Funding had greatly increased pension security for members of their company's DB pension scheme.

Robert Macgregor, corporate development director at Alexander Forbes Financial Services, said:

"It's quite clear from the survey that businesses are struggling with their defined benefit pensions.

A very high proportion of employers expect to end all defined benefit pension provision within the next five years building on the already strong trend to switch from defined benefit to defined contribution."

He laid the blame squarely at the door of the government, saying:

"Government action to protect members of final salary schemes through the introduction of the PPF and Scheme Specific Funding has also had the perverse effect of hastening the end of defined benefit provision.

Employers have seen their costs soar with some seeing their costs rise by an alarming 30 pct just to comply with the terms of the Pensions Act 2004."

Link this with the appallingly low level of savings being laid down by the average British citizen, and the endowment mortgage crisis, and you can see a picture developing of a very miserable and impoverished old age for many.