Quantitative easing (QE) and low gilt yields caused private sector final salary pensions to close to new staff at the fastest rate on record last year, according to the National Association of Pension Funds (NAPF).
The trade association’s latest annual survey revealed only 13% of final salary pensions were open to new members 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.
The survey – which covered a total of 1018 pension schemes with nine million members and £628bn under management – also revealed defined benefit (DB) pension funds are increasingly closing to the workers who are already in them. The number of DB schemes that shut to existing staff climbed to 31% in 2012 from 23% in 2011, according to the survey.
Almost half (46%) of employers still offering a final salary scheme are planning to close it to new staff and offer them a defined contribution (DC) pension instead, while a third (29%) of those pensions closed to new joiners but still open to future contributions from existing members said they would also make changes in the coming years, including closing the scheme or making it less generous.
The NAPF said rising longevity, red tape and poor investment returns have long put pressure on DB schemes, but a barrage of fresh closures has been brought about by higher liabilities created by QE and low gilt yields.
NAPF chief executive Joanne Segars (pictured) said: “The pressures on final salary pensions have proven too great for many businesses. The growing liabilities fuelled by quantitative easing will have been a factor behind the record hike in closures.
“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.”
However, the survey also showed total contributions from both employers and employees into DC schemes reached an all-time high of 12.5% of salary in 2012, which is well above the 8% minimum that auto-enrolment requires.
Segars added: “While many have closed their doors, private sector final salary pensions are far from finished. More than two million workers are still saving into one and they pay the pensions of over four million pensioners. It is essential that the government shows them more support in managing some extremely testing economic circumstances.”
Elsewhere, the survey found the proportion of total assets invested in UK equities fell from 12.2% in 2011 to 9.9% in 2012, while the allocation to corporate bonds rose from 12.4% to 15.1% over the same period. .
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