A quarter of companies which currently offer only final salary schemes will introduce a money purchase scheme within the next five years, according to a new survey.
The JP Morgan Fleming Asset Management survey - a major initiative to build up a picture of trends within the industry - received responses from a broad range of companies representing over £175bn in UK pension scheme assets.
And, in common with last year’s findings, it showed that the gradual move toward DC continues.
Many believe the move to DC will be swift as more and more companies calculate the high costs of providing a sufficient level of income in retirement for their employees, as life expectancy continues to increase. The recent decline in global equity markets has led to the acceptance that the previous gains pension funds could rely on are less easy to achieve.
There is also the effect of legislation, which has succeeded in increasing the burden on scheme trustees as they strive to ensure compliance. The new accounting principles ensure greater complexity within the scheme accounts, making the reconciliation of the pension scheme assets to the balance sheet, increasingly complex.
Interestingly, over 50pc of respondents to the survey now offer a DC arrangement to some or all of their employees.
Of those who offer a DC style pension to their members, 65pc offer it to all of their employees and 34pc offer such a scheme to only a selection of their employees. Of those respondents who currently only offer a final salary scheme to their employees, 21pc are planning to offer a DC plan within the next 12 months and 7pc within the next two-to-five years.
The most recent and significant trend has to be that of stakeholder. The government has strongly indicated that it wants more people to provide for themselves in retirement and thus rely on private pensions rather than the state.
Currently 65pc of the population over 65 rely on the state for their income in retirement. Only 40pc actually receive any contribution from their former employers, which would provide an adequate income in retirement. In an attempt to reverse this, stakeholder pensions have been introduced, with the rationale that they will offer more flexible pension arrangements at less cost to the individual.
But how are the companies we spoke to addressing this new type of personal pension? Of those who responded to the survey, over 60pc plan to use or modify their existing arrangements to meet the requirements.
Currently 21pc of respondents say they have already complied with the regulations with 6pc still not knowing how they would address the new requirements.
One development since last year’s survey is that over 70pc of DB schemes are considering restructuring as a direct result of the introduction of stakeholder pensions, compared to a much lower level of 52pc last year.
However, despite the momentum only 5pc of respondents will be introducing stakeholder to replace their existing arrangements, with 41pc simply adapting their existing schemes. The following graph shows just how our respondents are preparing for October 2001.
By Len Roberts
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