To many in the UK, the prospect of a generous pension scheme has represented a safe haven within a shaky economic environment. This support system may soon come under threat, however, as more and more companies are cutting down on or entirely eliminating their final salary pension schemes. According to the Debt Advisory Line’s Jim Rowley, the news, reported by the National Association of Pension Funds (NAPF), could mean that many pensioners will find it hard to get by on their pension alone: “Many generations of employees have been able to rely on final-salary pension schemes as a shield against poverty as they reach the end of their working life. The latest figures by the NAPF are casting this into doubt, with potentially detrimental effects on national debt levels.“
The annual report by the National Association of Pension Funds did not so much call into question the pensions for those already on a scheme. But it did imply that far fewer employees would be able to enter into one in the future: 23% of schemes are shut to new staff and existing staff – an increase by a full six percent compared to last year and a staggering 800% rise in relation to the figures for 2008. Not everything was bad, as Joanne Segars, chief executive at NAPF argued: “This shows the kind of pressure that pension schemes are under. But there is still quite a lot of good pension provision out there.” Still, it could hardly be ignored that many firms were either toning down their schemes or forfeiting on them altogether.
According to Segars, the downturn in final salary pension schemes was part of a wider issue and underlined the importance of pension reform in the UK. NAPF have estimated that unless the government improves on the current situation, fourteen million people in the UK may face inadequate income in retirement – a dangerous and inacceptable number. Segars particularly singled out the importance of smaller companies in the process: “Whilst carving out or pushing back the start date for small employers might have short term political temptations in the current economic climate, the longer term effects would be highly damaging to the nation’s retirement prospects. When it comes to pensions, the Government must stick to Plan A. These reforms are a once in a lifetime opportunity to help tackle the UK’s pensions saving crisis. These reforms have been a decade in the making and now is the time to press play, not pause.“
Jim Rowley echoed her sentiments: “Pension reform is of national importance. In the past, pensioners were often capable not just of supporting themselves, but actually supporting relatives as well. If they, too, become dependent on borrowed money, we could be headed for serious troubles in the future. We invite anyone wishing to discuss the potential effects of disappearing pension schemes for their debt level with us for a consultation.“