Pensions collapse will hit millions
THE pensions crisis deepened yesterday as figures showed record numbers of final salary schemes are being closed.
One in five plans was shut to both new and existing members last year, the National Association of Pension Funds revealed.
The collapse of the traditional occupational pension means millions of savers will be denied the retirement income they had expected and budgeted for.
Joanne Segars, chief executive of the association, said: “The pressures on final salary pensions are relentless and their rate of decline seems to be shifting into a new gear. The rate of closures to new staff seems to have levelled off, but now those who are already in a final salary pension increasingly find themselves being locked out and many people will feel aggrieved.”
Manufacturing giant Unilever this week became the latest firm to shut its generous defined-benefit scheme, joining Asda, Northern Rock, Aviva, Taylor Wimpey and Tate & Lyle. It said the £5.4billion scheme was “increasingly unaffordable and unsustainable”. Nearly a third of Britain’s workforce have final salary pensions, with some 2.6 million in the private sector and 5.4 million in the public sector. But Mrs Segars warned: “More closures are inevitable. Rising longevity and the expense of final salary pensions mean an increasing number of firms are looking at this option.
Millions of savers will be denied the retirement income they had expected a
“Without action now on workplace pensions – and state pension reform – future generations of pensioners will face a poor and uncertain old age.”
The Unilever move will see 7,000 existing and former employees switched from a defined benefit pension to a less generous defined contribution scheme, where workers rather than employers shoulder the financial risk.
Existing pensioners were upset by the company’s decision. John Scholey, head of the Committee of Unilever Pensioners, said: “We are disgusted that Unilever has broken its word. This action is mean and penny-pinching.”
Over the past decade, final salary pensions have come under huge pressure due to people living longer, poor stock market returns and red tape. Just 21 per cent of private sector schemes are now open to new joiners, compared with 88 per cent 10 years ago.
Roger Turner, chief executive of lobby group the Occupational Pensioners’ Alliance, said: “Companies are hell bent on closing their final salary schemes. Time is now running out on them.”
In the public sector, too, the final salary scheme is under attack. Lord Hutton’s proposals for pensions reform, published last month, made the case against this type of pension plan.
But the schemes are not struggling financially. The Pension Protection Fund says that the 6,533 final salary schemes in the private sector currently have a combined surplus of almost £46billion. And the firms closing the schemes are invariably profitable.
In February Unilever announced pre-tax profits were up 18 per cent.
The Anglo-Dutch firm, which owns brands such as Marmite, Bovril and Magnum ice cream, will start a 90-day consultation with staff and unions.
Chairman Amanda Sourry said: “One of the principles we want to establish is that both the responsibility and risks involved in saving for retirement are more equally shared between Unilever and its UK employees.
“The changes have been proposed to help tackle the increasingly unaffordable and unsustainable costs associated with Unilever’s UK pension fund.
“Like many other companies that have already taken similar action we must face up to this difficult issue.”
