More and more companies are closing access to final salary pension schemes, and many are ending them altogether, even for existing members, in favour of defined contribution schemes, and so shifting the investment risk to employees. The former social security minister Frank Field has added his voice to those warning that this trend has serious implications for the retirement income of many employees in the UK.
The National Association of Pension Funds identifies this cause as a new accounting rule, FRS17. In a survey of its Members, the NAPF found that more than three quarters of companies offering final salary pension schemes were less likely to do so because of the new accounting standard, known as FRS17. Several final salary pension schemes have already closed to new employees and, in some cases, to existing employees, and have cited FRS17 as a key reason for doing so.
NAPF Chairman Peter Thompson said: “We have been warning for some time that FRS17 would drive many employers from providing defined benefit pensions, and that is precisely what is now happening. The NAPF has always supported better disclosure of relevant information, and would welcome an accounting standard which reflects the long term nature of any pension promise. But bringing snap-shot accounting into the accounts of the sponsoring company will not only invite confusion among investors, but will inevitably lead firms to question whether it is worth their while continuing to offer a good quality final salary pension scheme. Coming on top of other pressures on company pension scheme providers, FRS17 will all too often prove to be the final straw which drives firms away from offering such schemes. In doing so, it will jeopardise the Government’s aim of reversing the present 60% state/40% private split of pension provision, and threaten the retirement incomes of thousands of tomorrow’s pensioners.”