UK - With two million fewer people in defined benefit schemes in the UK than a decade ago, employers are wiping an estimated £4.15bn a year off their pension contributions bills, according to research from Brewin Dolphin Wealth Management's division (BDWM).
BDWM also said the cost of pension provision nearly halves when firms switch from final salary to money purchase schemes
The investment management firm believes this is likely to lead to many people having much smaller pension funds than they expect.
In total, the number of workers with final salary pensions has fallen by two million over the past ten years.
Martin Smith, chief executive of BDWM said: “As companies face up to huge deficits in their defined benefit pension schemes, a growing number are taking the decision to close them to new members of staff and in some cases to existing employees.
“They are moving them towards defined contribution plans, which usually mean smaller contributions from employers and less risk to them because they have no long term liabilities.
“The average company contribution level for a DB scheme is around 15% or 16% compared to 7% or 8% for a DC plan. With almost 60% of DB schemes closed to new members and more closing, within 20 to 30 years few people will be retiring on pensions based on their final salaries.”
Adair Turner, chairman of the Pensions Commission, added: “DB schemes are a dying product. At the present time we only have 1.9 million people who have a private sector DB scheme but that was more than five million ten years ago.
Recently, the Pensions Commission said all final salary schemes are likely to close by 2010.
“I would love companies to becomes an intermediary between DB and DC schemes rather than them saying that the DB schemes are costing them too much, closing them and moving everyone onto a DC scheme.”
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