Employers shun defined-benefit pensions
Nine out of ten defined benefit pensions are now closed to new members as employers continue to move away from the high cost schemes, research has showed.
A further 18 per cent of the schemes, which include final salary pensions, have also been closed to future accruals from existing members - double the level seen four years ago, according to the Association of Consulting Actuaries (ACA).
The group warned that the situation was likely to continue to deteriorate, as a third of companies were currently reviewing their defined benefit schemes, usually with a view to either closing them to future accruals or moving from a final salary to a career average scheme.
Around 91 per cent of defined benefit schemes were in deficit, having an average funding level of 79 per cent, and a fifth of schemes said the shortfall would take more than 10 years to close.
Employers are continuing to contribute more than three times as much to defined benefit schemes as they are to the less generous defined contribution ones that replace them.
Companies paid an average of 23 per cent of workers’ pay into defined benefit schemes, compared with only around 6 per cent to defined contribution ones, under which staff have to shoulder the risk of investment volatility and increased life expectancy themselves.
One in four of the 309 companies questioned said they expected to reduce the benefits of their existing pension scheme when auto-enrolment comes into force from 2012 to offset the higher costs, with 15 per cent considering closing their scheme altogether.
Only 6 per cent of companies said they thought the government's policy of supporting quality workplace pension schemes was working, down from 38 per cent two years ago.
ACA chairman Keith Barton said: “These are worrying times for all those looking to retire in the years ahead.
“Later this month we will be mapping out a challenge to the political parties ahead of the general election to take a bolder approach in the next Parliament. We will be looking for a commitment to establish a standing Pensions Commission charged with promoting good pension provision of all types.”
He said among the things the group would like the new Commission to introduce would be changes to the law to enable employers to offer a wider range of pension designs, under which employer costs could be capped in the event of demographic and economic changes.
Meanwhile, the Association of British Insurers called on the Government to increase the age at which people with a defined contribution pension have to use their fund to buy an annuity from 75 to 80. It also wants to see more done to encourage couples to look at their joint retirement income needs.