UK - Nearly a quarter of defined benefit schemes in the UK are set to close to new members over the next two years, with 11% set to close outright.
New research conducted by Norwich Union found that 23% of private sector employers with defined benefit schemes said that it is likely that they will close to new employees in the next two years, while a further 23% said that this action has been taken within the last two years. Eleven percent said that it is likely they will close outright their defined benefit schemes to both new and existing members in the next two years, compared to only 4% who said they have done so in the last two years.
The research, which surveyed more than 1,000 UK employers, also found that the average employer contribution to defined contribution schemes is 5.8%, significantly lower than the average of 11% for defined benefit schemes. Iain Oliver, head of corporate pensions at Norwich Union, believes that radical thinking is now needed to halt the trend of declining employer contributions and called on the government to change the tax system.
Oliver said the government should introduce a system of tax credits for employers, dependant on the employer’s financial commitment to a pension scheme or the level of employee take-up.
He also said the government should adjust the tax system so that there is more of a taxation incentive for employers to make a pension contribution than increase employer salaries.
This would have an obvious benefit in incentivising pension contributions and would also have wider economic benefits, he said.
Oliver also called for a government-funded program of education with the aim of creating a real understanding of the importance of pension provision at an early age.
*When asked which combination(s) of employee, government or employer should be responsible for helping employees avoid a major shortfall in income in retirement, 74% of employers consider this to be the role of government and employees, not employers.
By Scott Anderson
This week's edition of Professional Pensions is out now.
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