How many people have final salary pensions in the UK?

While the number of actively contributing members has fallen significantly, millions of people in the UK still have entitlements to a final salary pension, also known as a defined benefit (DB) scheme. This once-common form of retirement provision is now a benefit mostly enjoyed by public sector employees and legacy private sector members.

Quick Summary

Millions of people in the UK hold final salary pensions, though the number of actively contributing members has fallen significantly, especially in the private sector, as many schemes have closed to new members. Total membership, including deferred and pensioner members, remains substantial, protected largely by the Pension Protection Fund.

Key Points

• Millions of Members: While new private schemes are rare, over 9 million people in the UK have a membership in a private Defined Benefit (final salary) scheme, which includes active, deferred, and pensioner members.

• Declining Active Membership: The number of private sector employees actively contributing to final salary schemes has fallen dramatically, from 3.5 million in 2006 to under 1 million in 2022.

• Public Sector Predominance: Final salary schemes are now far more common in the public sector, with millions of public sector workers covered by such arrangements.

• Scheme Status: Most private final salary schemes are closed to new members or closed to all future accrual, meaning existing members are no longer building up new benefits.

• Shift to Defined Contribution: The decline of final salary schemes directly correlates with the rise of Defined Contribution (DC) pensions, largely driven by automatic enrolment.

• Pension Protection Fund: In case of employer insolvency, the Pension Protection Fund (PPF) protects members of eligible private DB schemes, safeguarding millions of members.

The Current Landscape of Final Salary Pensions in the UK

The landscape of UK pensions has shifted dramatically over recent decades. Defined Benefit (DB) schemes, which provide a guaranteed retirement income based on salary and years of service, have largely been replaced by Defined Contribution (DC) schemes. However, statistics reveal that final salary pensions are far from obsolete, with a significant number of people still relying on them for retirement.

According to The Pensions Regulator's analysis, total membership in UK private DB and hybrid schemes was approximately 9.424 million in 2024, a small decrease from the previous year. This figure includes those still building up benefits, those who have left but are yet to retire (deferred members), and those already receiving a pension (pensioners). Public sector pensions, which are predominantly DB, are held by millions more, with active participation in public service pensions reaching 6.6 million in 2019.

The Decline in Private Sector Schemes

The most notable trend is the decline in active final salary pension membership within the private sector. The UK Parliament reported that the number of private sector employees actively accruing new DB benefits fell sharply from 3.5 million in 2006 to just under 0.9 million by 2022. Many private companies, facing rising costs and longer life expectancies, closed their final salary schemes to new entrants, and later, to all future benefit accrual. As of 2024, The Pensions Regulator noted that 73% of schemes were closed to future accrual.

The Rise of Defined Contribution Schemes

This decline has been mirrored by the rise of Defined Contribution (DC) pensions, a trend accelerated by the introduction of automatic enrolment legislation in 2012. Under this system, employers must enrol eligible employees into a workplace pension, which is typically a DC scheme. These schemes rely on contributions from the employee and employer, with the retirement income dependent on investment performance rather than a guaranteed amount.

Key Membership Categories

Within the final salary pension landscape, members fall into several key categories, as highlighted by The Pensions Regulator and other industry bodies:

• Active Members: Employees currently working for the company and still accruing benefits. In the private sector, this is now a relatively small group, though it remains strong in the public sector.
• Deferred Members: Individuals who have left their employer but have not yet reached retirement age. Their pension is 'frozen' and will be paid out when they retire, often with some index-linked increases.
• Pensioner Members: Individuals who are currently receiving their retirement income from the scheme. Pensioner membership has been increasing as the baby boomer generation retires.

Why the Shift Away from Final Salary Pensions?

The reasons behind the decline of private sector final salary schemes are multifaceted. Several factors have contributed to employers switching to less costly DC alternatives:

1. Financial Risk: DB schemes place significant financial risk on the employer. The company is responsible for ensuring there are enough funds to pay the promised pensions, regardless of market performance. Economic volatility and extended life expectancies have made this an increasingly expensive and unpredictable commitment.
2. Cost: The cost of funding DB schemes has become prohibitive for many companies. Low investment returns and improved longevity mean companies must contribute more to meet their future liabilities.
3. Regulation: Increased regulation and tighter funding requirements, such as those overseen by The Pensions Regulator, have added to the cost and complexity of running DB schemes.
4. Automatic Enrolment: The introduction of automatic enrolment effectively pushed employers toward setting up and contributing to DC schemes, which are cheaper and have less risk for the employer.

The Impact on Retirement Savings

The shift from DB to DC pensions has profound implications for retirement planning in the UK. While DC schemes offer flexibility and personal control, they transfer the investment risk directly to the employee. This requires individuals to take a more active role in managing their retirement savings.

Final Salary (DB) vs. Defined Contribution (DC) Pensions: A Comparison

Feature	Defined Benefit (Final Salary) Pension	Defined Contribution (Money Purchase) Pension
Benefit	Guarantees a specific income in retirement, based on your salary and service.	Retirement income depends on contributions and investment performance.
Risk	Employer bears the investment risk. Income is guaranteed.	Employee bears the investment risk. Income is not guaranteed.
Cost	Expensive for employers to fund, especially in the private sector.	Cheaper and more predictable for employers.
Flexibility	Less flexible. Payouts are typically a regular income stream.	Highly flexible. Can be accessed as a lump sum, drawdown, or annuity.
Prevalence	Dominated by public sector employees and legacy private sector members.	Now the standard in the private sector, especially with auto-enrolment.

Conclusion: A Shrinking but Enduring Legacy

To answer the question How many people have final salary pensions in the UK?, the numbers show a complex picture. Millions still hold entitlements, a significant portion of whom are public sector workers or are deferred members from closed private sector schemes. The number of active members in the private sector is very small and continues to shrink. The final salary pension is becoming a legacy benefit for most, with the future of private sector retirement savings firmly in the realm of Defined Contribution schemes. For those with a final salary entitlement, it remains a highly valuable asset.

For more detailed statistics and regulatory information on UK pension schemes, you can visit the official site for The Pensions Regulator.

Frequently Asked Questions

What is a final salary pension?

A final salary pension, or defined benefit (DB) scheme, is a retirement plan that guarantees a specific income in retirement. This income is calculated based on a member's final or average salary and their length of service with the employer.

Are final salary pensions still available in the UK?

For most private sector workers, new final salary schemes are no longer available. However, they are still common in the public sector (e.g., for teachers, NHS staff) and millions of people retain their memberships in older, closed private schemes.

How many people in the private sector are still actively building up final salary pension benefits?

The number of private sector employees still actively accruing final salary benefits is very low and continues to shrink. In 2022, this figure was just under 0.9 million, down significantly from previous years.

Why have so many final salary schemes closed to new members?

Private companies have closed final salary schemes primarily due to financial pressures. The schemes are expensive to run, and the risk associated with guaranteeing a future income stream has become too high, especially given economic volatility and increasing life expectancy.

Is my final salary pension safe if my employer goes bust?

Yes, if your pension scheme is an eligible private sector scheme, it is protected by the Pension Protection Fund (PPF). The PPF will pay compensation to members if an employer collapses and the pension scheme cannot meet its obligations.

How does a final salary pension differ from a defined contribution pension?

A final salary (DB) pension guarantees an income based on your salary and service, with the employer bearing the risk. A defined contribution (DC) pension provides a pot of money based on investment performance, with the employee bearing the risk.

What happens to my final salary pension if I leave my job?

If you leave your job, your benefits become 'deferred.' They are preserved within the scheme until you reach retirement age, at which point you will start receiving the pension based on your accrued benefits. The value may also increase in line with inflation.