The end of final salary pensions?

Royal Dutch Shell has become the last member of the FTSE 100 to close its final salary pension scheme to new members of staff.

The oil giant will offer new employees membership of a money purchase pension from the start of 2013.

This move will place the risk of providing a pension income in retirement onto individual members of staff.

With a final salary (defined benefits) pension scheme, the employer must manage the risks of providing a pension promise. This promise has become increasingly expensive as investment returns diminished and we all keep living for longer.

Some recent numbers from the Association of Consulting Actuaries showed that around 90% of final salary schemes in the private sector have now closed to new entrants.

Is this the end of final salary pensions?

The future for pension provision now looks like it will be the responsibility of individual employees to manage.

Trying to match the level and shape of benefits provided by a typical final salary pension is an expensive exercise.

Increased personal responsibility will mean balancing financial priorities during a working lifetime, to ensure sufficient assets are accumulated to fund a lifestyle in retirement.

Robust financial planning will be required to keep retirement income plans on track.

This means regularly reviewing projected levels of retirement income and taking an active interest in how pension funds are invested.

Pensions remain a complex area of financial planning for many people. The need for professional advice to get the most out of new pension offers from employers is essential.

Photo credit: Flickr/Gerard Stolk vers la Chandeleur