End of final salary pensions?

Dire warnings that final salary pensions for private sector employees might become extinct within five years should provide mixed blessings for many listed companies. The National Association of Pension Funds (NAPF) has made this assessment of pension provision ahead of a meeting organised by the Pensions Commission, chaired by former CBI chief Adair Turner.

Following the appointment of Blair acolyte David Blunkett as Secretary for Work and Pensions, this issue is likely to form a major part of the current Government’s programme during its third term of office. The Pensions Commission, also set up by the Government, is due to report its findings and recommendations by the end of the year as well.

The NAPF has already discovered that three-quarters of final salary schemes are already shut to new members because they are too expensive to operate. Listed companies are required to include a statement about these pensions funds in their accounts, to show investors any potential liabilities that will be incurred in future years. If these are closed and start to shrink then this factor becomes less important when assessing the investment merits of a company.

Fund managers and other providers or retirement funds could benefit, because employees will have to sort out their own pension provision, certainly with Government encouragement through tax-breaks and, possibly, because of legal compulsion. Many may choose such third party providers.

Overall the Pensions Commission reckons 12 million people are not saving enough for their retirement.