Millions to lose out as final salary schemes pensioned off

Millions
of people could see their pension cut by up to a third as employers reject
final salary schemes, according to KPMG.

KPMG
Pensions research found that 43 per cent of companies running defined
contribution pension schemes are making contributions of five per cent or less,
while in a typical final salary scheme companies will be making contributions
of up to 10 per cent.

The
report says that with defined contribution plans typically having combined
employer and employee contributions of 10 per cent or less of an employee’s
salary, an employee is likely to receive a pension around 30 per cent less than
in a typical final salary scheme.

David
Fairs, partner in KPMG pensions, said the move to combined cost pensions could
leave people financially short when they retire.

“More
and more companies are closing down their final salary schemes, some even to
existing members, and switching to defined contribution,” he said. “While
defined contribution schemes make good business sense for employers, it is
vital that employees make much higher levels of contributions and are aware of
the risks inherent in not doing so.”

He
said the level of voluntary pensions is low in the UK and unless people save
more for their retirement, the state will be left to pick up the bill.

Fairs
said pensions are now costing business 15 per cent or more of payroll.

By Quentin Reade

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