The wave of final salary pension scheme closures is set to worsen after new research revealed 94% of employers intend to reduce or axe their provisions.
A survey of 179 employers by PricewaterhouseCoopers (PwC), including 38 of the FTSE 100, found the number of firms that have closed defined benefits for existing staff has more than doubled from 14% last year to 32% – with a further 30% planning to do so in the future.
Marc Hommel, pensions partner at PwC, said: “Employers are sounding a repetitive death knell for defined benefit pensions. Numerous factors, including the size and volatility of funding costs, and also concerns about the inequality of pensions provision within an employer’s workforce, are accelerating their demise.
“Companies recognise the value to their businesses and people of providing workplace pensions, but not at the risk of jeopardising the business as a whole.”
The survey also revealed 87% of employers believe their staff are not saving enough for retirement, and 60% think their employees will not be able to retire when they wish due to insufficient savings.
Last month a poll by HR consultancy Hewitt Associates found the average gap between the pension a worker expects to receive and what they will actually receive has widened to £50,000.
Hommel said: “While employers cannot shoulder all the burden of responsibility for an ageing population with insufficient retirement savings, they will undoubtedly be impacted by these forthcoming socio-economic problems. Those employers that can facilitate retirement saving in an easy, understandable and flexible way will be best placed to ride these longer-term challenges.”
But with auto-enrolment onto pension schemes becoming compulsory in 2012, 69% of employers still do not fully understand the cost and implications of the changes to their business.
PwC warned the cost to employers could reach up to £1,000 a year per affected employee, with retail, leisure and construction sectors being the worst hit, as up to 90% of their staff do not currently have pension provisions.
“Some UK employers face millions of pounds in additional costs from 2012, when they will have to automatically enrol employees into a pension scheme and ensure minimum contributions are paid,” Hommel said. “This is a pressing issue for those employers that need to plan for this financial outlay, and who risk financial penalties and reputational risk for failure to comply.”