The National Association of Pension Funds (NAPF) has published figures showing that a large number of defined benefit pension schemes have closed in the private sector this year.
Around 23% of remaining final salary pension schemes closed the doors to future benefit accrual by existing members or membership by new staff.
This makes 2011 one of the busiest years for pension scheme closures in the private sector.
In 2008, only 3% of defined benefit schemes closed to members. This increased to 17% in 2010.
As a result of the scheme closures this year, around 250,000 people in the private sector have lost access to final salary pensions over the past three years.
Those schemes that do remain open are typically only available to existing scheme members. Only 19% of final salary pensions in the private sector continue to accept new employees as scheme members.
This compares with around 88% of private sector final salary schemes open to new members only eleven years ago.
Much of the focus about pension funds recently has been on the proposed changes to schemes in the public sector.
Whilst the public sector will retain defined benefit pensions, albeit on a career average earnings rather than final salary basis, those working in the private sector are increasingly having to make do with defined contribution (money purchase) pension schemes.
This shift away from defined benefits in the private sector reduces risk and funding costs for the employer, placing this on each individual member.
If your employer is closing their pension scheme, it is important to seek professional independent financial advice in order to understand the cost of replacing those benefits in a money purchase environment.
Photo credit: Flickr/Horia Varlan
