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Have we seen the end of the final salary pension scheme?

Over the last few weeks there has been significant change in the final salary pension scheme sector with more and more companies looking to close these lucrative schemes and transfer to money purchase schemes. The ongoing difficulties with the UK economy have led to a significant drop in the value of pension scheme investments which has created a growing gap between pension liabilities and pension fund assets. As a consequence we have seen the likes of British Telecom and other major companies in the UK close their final salary schemes to new entrants.

While it is almost certain the end is nigh for the final salary pension scheme in the commercial market, the public sector is very different with new final salary pension schemes popping up on a regular basis. Fully funded by the taxpayer, any liabilities over and above the current assets of these pension schemes are covered by taxes from the UK population and are therefore in effect risk-free for members. However, there is no doubt that local taxation and national taxation will continue to creep higher and higher to pay for these expensive pension arrangements, with more direct and indirect taxes introduced on a regular basis.

Final salary schemes are dead in the commercial sector but very much alive and kicking in the public sector!

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