The writing’s on the wall for Final Salary Pension Schemes.

An annual report from the Office for National Statistics has revealed that 100,000 private sector final salary schemes closed in 2008 and last year PricewaterhouseCoopers predicted that 42% of final salary schemes still open to existing members would close in the next five years.

So why is this happening? Closures have been brought about as a result of ever increasing scheme costs, employer obligations to cover scheme deficits within predefined timescale and the unknown future liability that the schemes create for their employers. The situation has been compounded by recent stockmarket volatility and scheme members living longer.

You may ask, what exactly have companies done? There are various options available to the Trustees of final salary pension schemes, though agreeing a course of action can be a very difficult process, particularly as scheme deeds and rules will need to be taken into accounts together with any contractual rights held by the member.

Is it all bad news for members? If a scheme is closed to existing members, the effect this has on members future pension rights will depend to a large extent on the funding level of a replacement scheme. The key detrimental impact on members is the loss of the security of being able to predict their income in retirement. However, the replacement schemes can provide increased flexibility. 

What options do employers and employees? To determine the potential impact that a scheme change could have on the company and the scheme members , a solution would be to seek independent financial advice, which could provide an impartial assessment of the options available to the scheme and its members.

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