Thousands of firms abandon pensions

THOUSANDS of employers have ditched company pensions in the last year, ruining the retirement dreams of up to one million workers.

The worrying trend will be seen as a wake-up call for the Government, which is trying to encourage more people to save for their retirement.

Latest figures from pensions regulator Opra show the number of occupational schemes has dropped from 101,014 to 94,535, a fall of about 6%.

More than a thousand have been shut down because the employer has gone bust. These tend to be final-salary schemes which guarantee a set retirement income but are more costly for employers to run.

But, surprisingly, a large number of the closures are cheaper money purchase pensions - which offer no guarantee. More than 4,000 have closed between April 2003 and last month.

Experts believe the drop could be a result of employers ditching their existing pension schemes and setting up stakeholder pensions which are even cheaper to run.

Stakeholder pensions were set up by the Government as low-cost savings vehicles. It required all firms with five or more employees to make them available to staff.

But there is a big loophole. While bosses are forced to offer these pensions, they have no obligation to pay money into them.

More than 80% of stakeholder schemes are believed to be 'empty shells' set up solely to meet the basic rules.

Employers contribute an average 16% of annual wages to final-salary pensions and 6% to money purchase schemes. Average contributions to stakeholders are believed to be much lower, with most employers contributing nothing.

Ros Altmann, a Government pensions adviser, said: 'Confidence in pensions has plummeted to an all-time low. Young people don't want to take out a pension and those already paying in want to stop contributing. A lot of Government policies in place are actually undermining confidence, not restoring it.'

About 25m workers have pension provision but they have been undermined by tax and economic changes. Labour has taken £35bn from pensions through tax increases.

Workers are saving less into their company pensions. Many have lost faith in them as stock markets have wiped away millions of pounds from funds during the last few years. Scandals over personal pension mis-selling and the Equitable Life debacle have also dented confidence.

Instead, money is being put into property in an attempt to capitalise on the massive house price growth in the UK.

But the Pensions Policy Institute will warn today that property will, at best, complement a pension - not replace it.

Spokesman Alison O'Connell said: 'Saving in property is often proposed as an alternative to saving in pensions. But only a wealthy minority will be able to invest in property other than their own home.'