UK - Most UK manufacturers say that pension schemes will be unaffordable if there is even a small rise in employer contributions, according to new research.
A study by RSM Robson Rhodes and the Manufacturing Research Centre found that six out of ten manufacturers said that schemes would be unaffordable if employer pension scheme contributions increased by as little as 3-4%.
“This financial burden is so great, that four out of ten say that this level of increase would threaten the survival of the business,” said the study.
Funding the company pension scheme is such a financial burden that almost half of UK manufacturers said that it would have a negative impact on profitability.
A further four out of ten said that pension scheme payments were adversely affecting the company's ability to compete with overseas competitors.
John White (pictured), head of pensions and investment at RSM Robson Rhodes said, The low tolerance of such a small increase in contribution rates is very worrying. But what is more concerning is that despite manufacturers anxieties over pension affordability, more than eight out of ten have not even considered changing their pension advisors. Now that changes to accounting standards have made pensions visible on the balance sheet it is vital that manufacturers take the right advice to achieve the most competitive deal they can.
With eight out of 10 respondents citing return on investment as having an important impact on the future cost of providing pension benefits, White also added that employers were apportioning too much importance to investment returns when in reality pension longevity was the most critical factor in terms of affordability.
He added, The fact that we're all living longer makes the pension much more expensive to buy. Investment performance makes little difference in the long term; you can afford a three year drop in investment returns when you're looking at schemes with a 50 to 100 year life span.
But there appears to be little by way of dissent about what workers should contribute towards their pensions. Just over seven in 10 respondents believe employees should pay between 2-6% of their earnings, which comes close to tallying with the eight out of 10 who said that this is about what their pension scheme members are currently paying.
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