More firms to ditch pension schemes

ONE in ten companies plan to push workers out of the final-salary pension schemes they currently operate, according to research just published. Employees would be faced with transferring to less generous money purchase schemes, says a study by Norwich Union.

The forecast will heighten fears that many Britons will be unable to rely on pensions they expected to provide a comfortable old age.

Safeway has joined a long list of companies - including Lloyds TSB, BT, Sainsbury's, ICI and Whitbread - that have decided to close their final-salary schemes to new recruits, but keep them running for existing members.

This trend is likely to continue with a quarter of private companies ready to close their schemes to new members in the next two years, said Norwich Union.

But 11% of firms are ready to go further and call a complete halt to final-salary schemes, which guarantee a retirement income based on the employee's final salary.

Such is the deepening of the pensions crisis that Alistair Darling, Secretary of State for Work and Pensions, will today promise to slash the red tape surrounding pension saving.

The Government hoped its flagship stakeholder pensions would encourage more people to save for their retirement. But more than half the stakeholder pension schemes set up by employers have no members, according to consultant Capita Hartshead. And two fifths have just 5% of eligible staff saving into the scheme.

Norwich Union surveyed 1,003 companies of whom 363 offered final-salary schemes upon which 4.5m Britons are relying to provide a comfortable old age. Only 4% of the firms surveyed had closed their final-salary, or defined benefit, schemes to new and existing members. But the number is expected to almost treble because employers say they cannot afford to keep up payments due to staff living longer and retiring earlier.

Money purchase schemes typically require a smaller contribution from employers. But the final pension is based on the fluctuating performance of the stock market - leaving employees to save much more if they are to fulfil their retirement dreams.

However, official figures, discovered by the Conservatives in the small print of Gordon Brown's Budget, show that the proportion of the nation's wealth going into investments such as high-interest accounts and pensions has plummeted to a record low. The 'savings ratio' - the share of national wealth going into savings - is predicted to be 3.75% this year, the lowest since records began in 1963. When Labour came to power it was almost 10%. The Tories said the change was due to a consumer spending boom sparked by increased borrowing and Government saving policies.

Norwich Union called for tough action from the Government, including tax incentives to encourage employers to maintain their final salary schemes. Iain Oliver, head of corporate pensions, said: 'During the last 12 months a growing number of well known large private sector companies have decided to close their final-salary schemes to new employees. Closing them to existing employees is a more significant step. We expect an increasing number of schemes to be closed for existing as well as new members.'

A spokesman for the National Association of Pension Funds said: 'The trend to close final-salary schemes is clearly accelerating and many are closing them for new and existing staff. Worryingly, it is the big companies that are doing this now, leaving tens of thousands of employees facing the problem of a poor retirement.' Government Ministers did not seem to be 'particularly concerned' about the move from final-salary schemes, said NAPF chairman Peter Thompson at its conference in Brighton on Thursday.

Where a final-salary scheme - also known as defined benefit - was closed, the money already put aside would generally be unaffected. But from then on, pension scheme members would be faced with putting subsequent savings from their wages into riskier money purchase schemes.

Brown must avert pensions horror