UK - Companies should look at cutting defined benefit scheme costs before making the jump to defined contribution, Bacon & Woodrow argues.
The actuarial and consulting firm believes many businesses do not consider all options open to them when planning a change to their pension scheme.
It says firms should consider:
* Asking employees to increase their contributions* Paying pensions to workers at a later age* Changing accrual rates
Bacon and Woodrow senior actuary Raj Mody said: “Companies need to look quite critically at what it is they are trying to achieve. By going to DC companies transfer entirely the cost of risk to the employee and leading companies may not feel it is appropriate.”
Mody added that many companies would consider it acceptable to ask their employers to pay more for their pensions - a move that would redress the balance of costs between workers and their companies.
Other pension industry figures disagree noting that companies want better value for money out of their employee compensation policy and that money purchase schemes are the best way of achieving this.
PricewaterhouseCoopers partner John Shuttleworth said some companies were seeking to redefine employee/employer relationships by seeing pensions as just one part of total compensation.
He added that most workers underestimate how much their DB pension scheme costs their companies.
Few employees he said knew that a 1/60th pension could cost their firms over 30% of pay when they are 55.
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