One in five employers offering a defined benefit pension is considering changing to a defined contribution scheme, according to a comprehensive study.
The 34th National Association of Pension Funds (NAPF) Annual Survey, which polled more than 500 pension schemes, found that 21% of defined benefit schemes could soon be closed to new members.
Just 28% of defined benefit schemes, such as those dependent on length of service and final salary, remain open to new members. This is down from 31% last year and 70% in 2002.
Employers are being forced to switch to defined contribution schemes – the value of which depends on the amount paid into them – due to increased life expectancies, rising pension management costs and the economic conditions.
Average total contributions to defined contribution schemes stood at 11% in 2008, with 7% coming from the employer.
|Current market conditions are inevitably having an impact on group personal pension schemes, money purchase schemes and employees’ own personal pension schemes. In this clip pensions specialist Anthea Whitton, a partner at Pinsent Masons, points out that although times are difficult, especially for employees approaching retirement, they do have options.|
When the government’s personal accounts system comes into force in 2012, employers will have to put 3% of an employee’s salary into a pension scheme unless the employee opts out. One in five schemes polled by NAPF said they would level down to 3% from that date.
NAPF chief executive Joanne Segars said: “There is still much outside pressure on pension schemes. Government, regulators and standard setters must take action to ensure the regulatory framework encourages good quality pension provision and continued employer commitment.
“This must include ensuring that the impact of personal accounts and auto-enrolment in 2012 does not place unnecessary and unwelcome additional administrative costs on schemes, and that the government sticks to its commitment to deliver a lighter touch regulatory regime for workplace pensions.”