Figures from the Office for National Statistics today confirmed that the number of workers who are in final salary pension schemes has taken a dramatic plunge between 1997 and 2009.
It’s well known that nine out of ten final salary schemes are now closed to new members as employers pull in their belts. But new statistics from the ONS reveal the extent of the change.
The survey looked at workers with occupational pensions. So any fall in pension savings is significant enough, but is even more serious against the backdrop of the third of the working population who are making no provision for their retirement at all.
In 1997, almost half (46%) of the workforce with an occupational pension plan had a defined benefit (or final salary) scheme. Of those some 16% worked in the public sector.
By 2009, the ONS found that the percentage of workplace scheme members with a final salary arrangement had plummeted to 33%. What could explain this change?
Increased life expectancy means that the pension schemes’ projected liabilities have grown as they have to pay out for longer. However, these increased liabilities have not been matched by an increase in contributions or stock market performance. In fact, poor stock market performance means that rather than being seen as the hallmark of a caring employer, any company that operates a final salary scheme is likely to view it as a millstone around its neck.
Looking more closely at the figures, there is a marked distinction in how public and private sector employees have fared. Of that 33% figure of occupation schemes being final salary ones, now only 15% are from the private sector.
Given the new government’s pledge to launch a review into public sector pensions, it will be interesting to see how these figures are altered in another ten year’s time when the full effects of the cuts programme are felt.
