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Private sector pensions shut down at record rate: Millions face working into their 70s for paltry payoutsOnly 13 per cent of new recruits at companies will get a 'final salary' pensionThe figure is dramatically down from the 43 per cent of new recruits in 2005National Association of Pensions Funds highlights a pension apartheid
02:24 GMT, 28 January 2013
02:24 GMT, 28 January 2013
Gold-plated pensions in the private sector are being shut down 'at the fastest rate on record', a report by the National Association of Pensions Funds warns today.
In 2005, 43 per cent of 'final salary' schemes allowed new recruits to a company to join. Today the figure has collapsed to just 13 per cent following the biggest-ever drop last year.
A 'final salary' pension promises to pay a worker a percentage of their earnings on retirement for the rest of their life, and is guaranteed and inflation-proofed, unlike other types of pensions.
Warning: NAPF chief executive Joanne Segars has highlighted the pension apartheid in Britain
As a result, millions of workers face the prospect of working into their 70s and still retiring with a paltry pension, unlike their parents who retired young on a gold-plated deal.
To make matter worse, soaring numbers are shutting down completely, putting up the 'Closed' sign to existing workers as well as new recruits.
The report, published today, reveals nearly a third of 'final salary schemes' have closed to both types of workers, compared to just three per cent in 2008.
In 2005, the hygiene firm Rentokil make front page news after axeing its gold-plated pension scheme to existing workers.
Today there is a steady stream of companies deciding to scrap their pension scheme, and replace it with an inferior, cheaper alternative.
The findings highlight the pensions apartheid in Britain as the vast majority of State workers continue to enjoy a guaranteed, gold-plated pension, unlike those in the private sector.
Joanne Segars, chief executive of the NAPF, said: 'Those starting a new job in the private sector have next to no chance of getting a final salary pension. What was once the norm is now a very rare offer.
'And those who are currently saving into one may find it gets closed. We are in the midst of a pension regime change.'
Record: The number of new recruits getting final salary pensions is down from 43 per cent to 13 per cent
The NAPF report says the 'record rate' of closures has been fuelled by the Bank of England's 375billion money-printing scheme, known as quantitative easing.
This has put extreme pressure on pension funds because it has made their liabilities – the pension promises that they have made to their workers – much bigger.
Their liabilities are calculated using the interest paid by Government bonds, known as 'gilts', but gilt yields have fallen sharply as a result of the controversial quantitative easing policy.
The NAPF said it has prompted 'a barrage of fresh closures.'
And bosses will continue to close down their pension schemes, according to today's report, which polled more than 1,000 pension funds with nine million members and assets of 628billion.
Over the next five years, nearly half said they are 'planning to close the pension to new staff'.
The Department for Work and Pensions estimates around 11 million people in Britain have 'inadequate pensions.' This means they either do not have a pension, or have a pension which is worth too little to pay for a comfortable retirement.
Since October, new rules forcing bosses to pay into a pension for the first time for their workers, who are automatically signed up to the scheme, are aimed at solving the pensions crisis.