PwC’s executive compensation report warns employers of dangers to brand, succession planning and talent management of decline in defined benefit pension schemes

Employers could face greater risks with their employer brand, succession planning and talent management if future generations of employees retire on “poverty” incomes because of poor company pensions, a study has warned.

The annual PricewaterhouseCoopers (PwC) review of executive compensation shows how increasing levels of incentives offered to executives have been accompanied by a marked decline in the number of defined benefit, or final salary, pension schemes.

The study warned that for many employees the changes were serious. Under new arrangements the combined employee and employer pension contribution is often barely more than 10% of salary.

This means the employee is likely to retire less than half of what they would have had with a final salary pension.

Tom Gosling, partner at PwC, said: “The risks for corporate reputations and succession planning are severe. Large numbers of employees retiring on poverty incomes will not be an acceptable risk for a responsible employer’s reputation.

“There are also implications for succession planning where attempts to freshen up the talent pool will be frustrated by employees who cannot afford to retire and who now receive greater protection through age discrimination legislation.”

Providing financial planning education to employees was key step to reducing risk, as was making employees’ pensions work better together with arrangements such as Save As You Earn and other company share plans, the report said.

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