June 21, 2005

NAPF warns on private pension schemes closing

by brian_turner

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Christine Farnish, head of the National Association of Pension Funds (NAPF) has warned that all final salary pension schemes in the private sector could close by 2010. The comments were made on BBC Radio 4’s Today programme, prior to a Pensions Commission meeting to discuss improvements to the UK’s pension system.

According to the NAPF, 75% of final salary schemes are shut to new members because firms find them too expensive.

A final salary scheme provides a pension as a percentage of the salary workers were earning when they retired. Many firms have not been able to fund such schemes and have switched to money purchase pension plans.

Under a money purchase scheme, workers invest money into a pension fund, which is used to buy an annuity when they retire. The annuity provides an income. It is more difficult to forecast the level of retirement income with an annuity as it depends on how well a pension fund grows and it is not usually as generous as that provided by final salary schemes.

Ms Farnish commented on the increased amount of responsibility and benefits employers are now expected to provide through final salary schemes. She said this is starting to cause employers “to reel back from the amount of liabilities they are carrying”.

The Pensions Commission meeting was attended by Work and Pensions Secretary David Blunkett, academic pensions specialists, pension fund groups, pensioners and other interested parties. The Commission is due to present its final recommendations in November.

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