UK - Accountants have backed controversial plans by the Financial Services Authority to give staff in its money purchase scheme bigger pay rises than final salary workers.
Grant Thornton said the regulator’s move was a “courageous decision” and went some way to eradicating inequality in the workplace.
The accountancy firm explained that with employers gradually closing final salary schemes to new entrants, new workers had no choice but to join the money purchase scheme – which caused an imbalance.
Grant Thornton financial markets group partner Patrick Storey said: “In most cases the employer’s contribution to a money purchase scheme will be a lot less than to a final salary scheme, thus creating an inequality between workers, dictated by when they joined their employer.
“In practice, a growing number of workers in the UK have a total benefits package worth a lot less than some of their workmates in a similar role, a disparity that a two-tier pay rise system can help rebalance’’
Research by the Association of Consulting Actuaries shows that 72% of final salary schemes are closed to new members and many of those that are still open are thinking about closure.
The ACA also found overall average money purchase contributions are approximately half of final salary schemes.
Under the FSA’s proposals, the 900 staff in its final salary scheme will be given pay rises of 4.2% while those in the money purchase plan – 3000 people – stand to get 6.7%.
Storey said: “The FSA will face criticism, but its action may have saved 900 people from being forced away from a final salary pension to a money purchase pension.
“The 900 affected and the other employees should welcome the FSA’s action.
“Although the implications need careful thought and design, this is a route that other employers should seriously consider.”
The Pensions Regulator (TPR) has set out plans to use "new regulatory initiatives" with over 1,000 schemes as it aims to tighten its regulatory grip and boost member outcomes.
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