UK - Increased pension costs have hit profits of half of all UK firms with Defined Benefit (DB) schemes and nearly a quarter have been forced to reduce investment in the business, according to new research.
A survey of 233 firms by the Confederation of British Industry (CBI) and Mercer Human Resource Consulting, found that rising pension costs are also threatening the long-term competitiveness of UK firms.
Many employers are putting in huge amounts to make up funding shortfalls in their DB schemes with some companies contributing between 30% and 60% of their payroll. Average employer contribution was 16.2%.
Mercer’s worldwide partner Peter Thompson said: The cost of DB pension provision has risen sharply in recent years. Many employers are having to contribute large, unplanned amounts to DB schemes, which explains why so many companies have now closed them to new members.
The survey highlights the substantial change in the types of pensions companies now offer – over the past two years, 41% of firms running DB schemes have switched to Defined Contribution (DC) for new employees. A further 10% are expected to switch to DC over the next 12 months. Two-thirds of employers have kept DB schemes for existing employees, but only 24% of companies now offer them to new employees – half the number of 10 years ago. Asked to predict pension provision in 10 years time, companies were clear that DC schemes would dominate, stating they would be the main form of pension for 60% of companies. There is growing interest in hybrid schemes – a combination of DB and DC – which share the risk between employers and employees. CBI deputy Director-General John Cridland said: These findings indicate that a major shift may be under way from occupational pension schemes to a much more flexible range of savings products.
“ As people live longer and retire later, the whole concept of retirement pensions will also change. Employers believe that new savings routes will be more suitable to meet employees' evolving needs. The survey showed that many employees remained ignorant or unsure about the benefits on offer and were failing to take advantage of company contributions to pension schemes. Forty-eight per cent of employees in the survey were eligible for a DB scheme and 38% for a DC scheme. But, while 83% of those eligible joined DB schemes, the figure for DC schemes was only 38%.
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