The question of the future survival of private sector defined benefit pension schemes has been raised in research published this week by the charity, the Pensions Policy Institute (PPI).
In its 69-page document, released on Monday, the PPI research cites government intervention and regulation as one of four main contributors that have affected the provision of defined benefit pensions in the private sector.
Other factors include inherent uncertainties such as improved life expectancy and investment returns, broader economic factors such as changes to the tax system and changing attitudes to pensions, with scheme members confused about scheme and state pension interaction.
Mike Jones, director of pension education website MyCompanyPension.co.uk says, “It is paradoxical that legislation that was initially introduced to protect scheme members’ benefits, such as increases to pensions in payment, and improved preservation of deferred benefits has led to a massive rise in the costs employers are bearing for providing salary-related pensions.”
The research draws attention to the fact that average employer contributions to these schemes have doubled to 22.6% in the five years since 2002, with employee contributions averaging around 6.1%.
Jones points out “The introduction of the NPSS in 2012 could be the final straw for many of the smaller schemes and inevitably some employers may take the opportunity to level down, if not completely close their schemes.”
Others, who may not have realised that auto-enrolment will extend to their defined benefit schemes will get a very real shock when the time comes. To these employers, money purchase schemes look like a much cheaper alternative to what they are currently providing. The research reveals that average employer and employee contributions to money purchase schemes are around half the level seen in salary-related schemes.
As if to prove the point, last week, charity Citizens Advice announced that it is to close its final salary scheme to current and future members. The closure will affect around 380 staff in the UK.
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