Why have final salary pension schemes fared so badly?

News that Barclays bank is introducing a significant re-organisation of its pension liabilities has in the eyes of many sounded the death knell for final salary pension schemes. These are schemes which pay out a set pension based upon each member's service and final salary at retirement. Once by far and away the most popular of pension fund arrangements, the situation has changed drastically over the last decade or so with many companies now suffering from significant pension fund deficits.



In essence a number of factors have come together to squeeze the life out of final salary pension schemes which include, reduced returns on investments, taxation on various pension fund charges and income, new regulations regarding the continuous re-evaluation of pension fund assets and a significant increase in salary inflation. Reduced investment returns and taxation on various pension fund assets and income have caused the most damage in the eyes of many and it is too late to return back to the "olden days".



Money purchase schemes are set to become the norm in the future whereby whatever fund you have available at retirement will be used to acquire an annuity, or income drawdown arrangements depending upon rates available at the time.