LONDON (Reuters) - UK companies closed final salary-based pension schemes at a record rate last year as funds struggled against rock bottom returns on their staple investments and growing life expectancy, the National Association of Pension Funds (NAPF) said on Monday.
Firms closed 31 percent of so-called defined benefit (DB) pension pots, compared with 23 percent in 2011.
Only 13 percent of DB schemes in the private sector were open to new joiners, down one third from 19 percent in 2011 and against 43 percent in 2005 when NAPF started keeping records.
Just over half of the schemes still open to new members said they were “considering further changes in the next few years”.
DB pension schemes have been grappling with spiralling deficits amid pressure from an ageing workforce, red tape from the European Union and the UK government and lacklustre investment returns, NAPF said in its 2012 Annual Survey.
Over the last three years, 375 billion pounds of quantitative easing by the Bank of England has contributed to a sharp drop in the yield on British government bonds, key investments for pension pots.
The deficit of British final-salary linked company pension schemes more than doubled to 231 billion pounds in 2012, according to the Pension Protection Fund (PPF).
Meanwhile, EU legislation requiring funds to have enough cash to cover employee pensions if a company goes bust may stop British firms offering final-salary linked pensions altogether.
The proposed rules would force British firms to find an extra 300 billion pounds to strengthen pension pots.
DB pensions, linked to an employee’s salary at retirement and length of service, are typically more expensive to provide than other annuity-purchase schemes.
The NAPF survey comes amid major changes to the pensions sector. Last October, the government introduced an “auto-enrolment” scheme to draw up to 10 million more people into a workplace pension.
The government is also considering a new type of pension scheme to encourage more people to save for retirement.
Editing by David Cowell