Half of large UK firms expect to make significant changes to the pension arrangements for existing staff in the next three years, a survey of company pension provision has revealed.
Pensions legislation and reform, financial pressures and accounting standards are the top three most important issues driving the changes, the survey by professional services firm Towers Perrin showed.
Of the 170 companies surveyed, just one-fifth offer defined benefit schemes to new employees. Of those, one-third plan to stop offering these types of schemes to new hires in the next two years.
This compares to more than two-thirds of companies that offered defined benefit just four years ago.
“The future of corporate pensions in the UK is undoubtedly defined contribution. The cost savings are clear. The challenge going forward is to make defined contribution work well for employees,” said Mark Duke, principal at Towers Perrin.
“Over the next few years, we will see companies lowering the value of defined benefit commitments, increasing employee contributions, replacing employee contributions with salary sacrifice and changes to retirement ages.”
Companies need to focus on raising the profile of defined contribution schemes with employees, Duke said.