The closure of private sector pension schemes accelerated in 2012, says the National Association of Pension Funds.

Just 13% of final salary pensions were open to new joiners 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.

Almost half of companies still offering final salary schemes to new staff said they were planning to close them, and offer them a defined contribution pension instead, where the retirement income is based on how the pension manager performs.

Final salary schemes aren’t just closing their doors to new members, but in some cases to workers who are already in them, the NAPF found. The number that shut their doors to existing staff climbed to 31% in 2012, a hike of more than a third from 23% in 2011. Hardly any firms in the FTSE 100 now offer final-salary pensions to new recruits.

The schemes, which offer a guaranteed payout, based on an employee’s earnings rather than the investment performance of the scheme, have long been under pressure from rising longevity and poor investment returns, with many companies facing huge liabilities.

But the NAPF blamed the Bank of England’s quantitative easing  program and low gilt yields for prompting a barrage of fresh closures. QE has indeed had a massive effect but it must be remembered that this effect has been compounded by people living longer. The reality is that final salary schemes are just unsustainable.

Nigel Green deVere Group

Blog written 30th of January