The recent strike by workers at the Grangemouth refinery that put the nation’s oil supply on the line was brought about because of threatened changes to the workers’ pension scheme. People are getting hot under the collar about final salary pension schemes closing to new entrants at last, but I fear it’s too late. Far too late in fact.

Final salary pension schemes are referred to quite nostalgically these days as the ‘gold standard’ of pensions. They were all the rage in the 1960s and 1970s and the funds held in them grew to titanic proportions in the heady days of the 1980s and 1990s.

 
Those titanic funds hit the iceberg of reality at the turn of this new century and for the last few years boards of directors up and down the land have been manning the pension lifeboats now that the Government has stopped them jumping ship. It’s not been possible since 2003 for solvent companies to walk away from their pension liabilities. These days companies have to buy their way out.

The first step most private sector companies with final salary pension schemes have taken is to close them off to new entrants. Around 80% of our private sector pension schemes are now closed to new entrants. According to the Association of Consulting Actuaries (the ACA) only around 900,000 private sector employees are currently in final salary schemes that are open to new employees.

At the moment that number still includes the employees working in the Grangemouth refinery, but it won’t if the changes proposed there go ahead. Bit by bit, up and down the land, our private sector final salary schemes are having the lights turned off.

Closing schemes to new employees is a bit like cutting the roots off a plant. Without the new entrants coming into the scheme it will eventually wither on the vine. As more and more people leave the closed schemes through retiring or changing jobs, say, and are not replaced then the number of private sector employees accruing final salary pension rights will be reducing all the time. Every day fewer and fewer people working in the private sector are building up salary-related pension rights. One day nobody will be.

In stark contrast to what’s happening in the private sector in the UK our public sector final salary schemes are as strong as ever. Today around 5 million employees in the public sector are in final salary schemes that are still open to new employees.

Those figures, of less than a million employees in the private sector against around 5 million in the public sector, tell you all you really need to know about what the pensions landscape is likely to look like in the UK in a few years time.

Our private sector final salary schemes will have been almost completely replaced with cheaper and, for employees, riskier money-purchase schemes, whereas public sector employees look likely to hold on to their gold standard pensions.

But at what cost to the public purse? There’ll be loads written about this one day when it’s so obvious that even Joe and Josephine Average can see what’s going on. Mark my words.

Steve Bee is head of pensions strategy at Royal London Group where he publishes his BeeHive blog at www.scottishlife.co.uk/beehive

Steve bee writes every week for citywire at http://www.citywire.co.uk/personal/-/personality-finance/Making-the-most-of-it/list.aspx