Final salary-based pension schemes closed at a record rate last year, as pension funds made measly returns on their principal investments and struggled to pay for an ageing workforce.
The National Association of Pension Funds said on Monday that UK companies closed 31% of defined benefit pension pots, compared with 23% in 2011.
The rate of closure confirms that the defined benefits (DB) – also known as final salary – pension schemes are a dying feature of large company benefits as the economy continues to flounder.
Just 13% of DB schemes in the private sector were open to new joiners, down one third from 19% in 2011 and against 43% in 2005 when the Pension Association (NAPF) started keeping records.
Just over half of the schemes still open to new members said they were “considering further changes in the next few years”.
In its 2012 Annual Survey, the NAPF identified the problem for DB pension schemes has been a ‘perfect storm’ of high pension fund deficits, low returns on investment, an ageing workforce, red tape from the European Union and the UK government.
A big drop in the yield on gilts, or British government bonds, which are key investments for pension pots, has weakened the DB pension model. Yields have fallen because of an unprecedented £375 billion of quantitative easing by the Bank of England in just over three years.
In 2012 the deficit of British final-salary linked company pension schemes more than doubled to £231 billion, according to the Pension Protection Fund.