CIPD warning over pensions meltdown

The increasing number of final salary pension scheme closures could herald
the end of all pension schemes, according to the Chartered Institute of
Personnel and Development (CIPD).

Last week, the National Association of Pension Funds (NAPF) annual survey revealed
that 26 per cent of final salary schemes were closed to new recruits in 2003,
compared to 19 per cent in 2002.

While many companies offered new staff defined contribution schemes instead,
the NAPF warned that the employer contribution rates were still far lower than
those for final salary (or defined benefit) schemes.

Under defined benefit schemes, employees are guaranteed a level of income in
their retirement, usually based on two-thirds of their salary. Defined
contribution schemes give a pension income linked to a fund for which the value
is dependent upon the contributions made, retirement age and the investment
return.

Charles Cotton, rewards expert at the CIPD, said that companies were deluded
if they thought moving from one pension scheme to another would solve their
problems.

"All they will be doing is switching from one problem to another,"
he said. "It requires a lot of time and effort to communicate the benefits
of defined contribution schemes to staff."

Cotton said that the existence of pensions was on the line as the public
perception that pensions were failing could make it more difficult to sell the
idea of pensions as an joining incentive.

NAPF chief executive, Christine Farnish said lower company contributions
were "storing up big problems for the future".

By Michael Millar

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