Company pensions degenerate into a two-tier system

A two-tier pension system is developing in the UK, according to a  report released today.

Fund management company Fidelity says a gap is growing between the retirement incomes of people who are members of final salary schemes and those who pay into a defined contribution pension plan.

According to Fidelity, final salary scheme members can expect an average annual pension income of £30,500 before tax, but the projected average income for members of defined contribution schemes is £13,200.

“The gulf between the retirement expectations of defined benefit (final salary) and defined contribution pension schemes is astonishing,” said Simon Fraser, president of institutional business at Fidelity.

Experts have been warning that a two-tier pension system is likely to develop as an increasing number of private sector firms have replaced their final salary pension schemes.

They say people are not paying enough into their defined contribution pensions and that many workers may have to retire with a pension lower than the current level of the minimum wage.

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