Bestinvest: Final salary pension schemes

Matt Brunwin, Senior Consultant, Bestinvest comments on the news that a quarter of major private sector firms expect to close their final salary pension schemes to existing members in the next few years: This is not a great surprise given the liabilities attached to these schemes. They simply can't afford to fund the benefits, particularly with low interest rates, increased longevity and poorer investment returns of late. The introduction of the accounting standard FRS17 means that scheme deficits are included on the balance sheet, meaning that this announcement is potentially bad news for share prices.

It also means that people will need to take much greater responsibility for their own retirement savings and understand their options and choices and the level of funding they will now need to make. They will also need to educate themselves or seek advice helping them understand investment risk. Most importantly consumers will need to save more money to meet their needs in retirement, as new company arrangements are unlikely to offer generous contribution rates.

As people will have to take more responsibility for managing their own pensions, they will need assistance and advice to ensure that their provisions will meet their requirements. Good financial planning advice is going to become more important of the coming years. Pensions is one area many of us try to ignore, the problem is so big and far in the future dealing with it keeps getting put to the bottom of the pile, however, looking at the issue sooner rather than later is absolutely critical as it does require long term planning.