In the fifties and sixties, my grandfather proudly told shareholders about the substantial sum he put into our final salary pension fund. It was regarded as the best way to look after long-service employees. I have followed his example, knowing that I am the one who looks new pensioners in the eye on the day of their retirement.
Everything was fine until 1997 when we lost a significant tax benefit, made worse when the government’s pension regulator set new rules and a rigid process for pension trustees to follow. Actuaries are now using short-term facts to predict long-term liabilities, and the wonderful concept of the final salary scheme is being killed off by accountancy rules and governance. The people who suffer most are the loyal employees who now have the prospect of a much smaller pension.
Our scheme is still open, but I can understand why you are contemplating closure. Don’t close it before you have looked at all the options – whatever happens, your deficit will not disappear if you close the scheme. You still have to fund pensions already accrued on past service. You must decide what you can do for future service and whether the scheme will stay open for new members. Get your actuary to check that the current contributions cover future benefits – if not, change them.
To make matters worse, the government is altering the rules again. From 2012, when personal accounts come in, you will have to reassess all future pension provisions. I am sure that you, like me, wish to look after long-service employees, but I despair. Actuaries keep changing their advice and the government keeps changing its mind. I don’t see how we can make a sensible decision. Sit tight until some of the confusion clears. Final salary pensions may still have a role to play.