Yet another sign that final salary pension schemes are heading for extinction dropped into my mailbox today, a gloomy reminder that fewer and fewer employees are going to enjoy the luxury of a pension linked to their salary and will be forced to head along the more perilous defined contribution route.
Billed “the end really is nigh”, a report from Pension Capital Strategies reveals only 20 FTSE 250 companies are still committed to final salary schemes for a sizeable number of employees. Only 140 have any final salary scheme at all and just 92 of these are providing more than a handful of current employees with final salary benefits.
It is easy to understand why. The total deficit of the companies’ schemes had risen to an alarming £12bn at the end of June, showing a deterioration of £6bn compared to a year ago. Even more worrying is the fact that the pension liabilities of 27 of the FTSE 250 companies are bigger than their stock market value, representing a risk to the business. GKN’s pension liability is more than treble its equity market value.
Many companies are trying to stem the growth of these pension liabilities by closing their defined pension schemes to new entrants, says PCS.
Just like the larger companies in the FTSE 100, those listed on its smaller sister index are reacting to economic challenges by reducing pension scheme costs and risks through closing DB pension schemes to new entrants or shutting them down altogether.
Expect very few private sector DB schemes to remain alive and well over the next two or three years.