£41bn pension deficit points to final chapter for final salary schemes

£41bn pension deficit points to final chapter for final salary schemes

The pension schemes of Britain's 100 biggest companies have swung £41bn into the red, the victim of falling stockmarkets and reduced contributions by cash-strapped employers.

Only a year ago, the combined pensions of FTSE100 companies were £12bn in surplus but the credit crunch has seen them plummet faster than at any time since records began, according to actuarial firm Lane Clark & Peacock.

It blamed equity market volatility, higher inflation and the credit crunch. It said the situation could have been worse if companies had not pumped £40bn into their schemes over the past three years and taken steps to reduce their investment risk.

The figures also showed a reduction in the amount employers were paying into pension schemes, falling over the past year from £13.4bn to £13.1bn.

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Pension experts said the re-emergence of deficits was another nail in the coffin for final-salary schemes and predicted they may disappear altogether from the private sector.

Many firms have closed such schemes to new employees, offering only defined contribution schemes, where the eventual payout to employees depends on the stockmarket.

Bob Scott, partner at the firm, said: "No sooner have companies breathed a sigh of relief about returning to surplus but they are back to multibillion-pound deficits.

"With a possible recession looming and the threat of further regulatory intervention, the outlook for continuing defined benefit provision seems rather bleak."

Pensions consultant Ros Altman said the research made "worrying reading", and it was likely companies would continue to close final-salary schemes.

"It is inevitable that employers will keep on closing schemes to both new and existing members, especially in the face of so much uncertainty around the funding and costs. This is the final chapter," she said.

"Final-salary pension promises will soon be a thing of the past for private sector workers."

She predicted a boom in "buyouts" as companies become increasingly desperate to find ways to get rid of their pension scheme risks. But she warned that over the longer term, buyouts would lead to pressure on the annuity market and lower incomes for pensioners.

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