Pensions policy requires ‘radical’ change of approach
Workplace pension schemes are in danger of failing to provide adequate retirement incomes, it has been claimed.
A new study carried out by the Association of Accounting Actuaries (ACA) has found that 91 per cent of defined benefit pension schemes in the private sector, including final salary funds, have been closed to new members. One in five are closed to existing members.
The research, which polled over 300 firms, also revealed that a quarter of employers are thinking about reducing the level of benefits when it becomes a legal obligation to enrol those employees who are not already members of a fund into a personal accounts scheme in 2012.
Although the amounts being saved in defined contribution schemes – the type of fund to which many employers are now switching – have shown an increase, the study said that progress has been slow. The level of employer contributions in over a half of all defined contribution schemes was less than 6 per cent of employee earnings, while employees themselves were paying in less than 4 per cent.
With investment returns likely to be uncertain in the future, the ACA argued that pension provision for large numbers of private sector employees will probably deteriorate in the coming years.
Keith Barton, the chairman of the ACA, said that a “radical change of approach” was needed.
Mr Barton commented on the survey: “These are worrying times for all those looking to retire in the years ahead. Whilst the government’s Personal Accounts initiative eventually may bring on board more pension savers, it has to be remembered that these accounts are designed to ‘fill the gap’ with a low-level pension, where no better pension scheme exists. Quality pensions require higher contribution levels.”
He continued: “Just 6 per cent of employers responding to the survey say they feel the government’s stated policy of supporting quality workplace pensions is working, down from 38 per cent two years ago.
“The huge public policy gap at present is meaningful action to protect good existing private sector schemes and to promote new pension designs that aim to check uncertain and volatile pension outcomes.”
In response, the Department for Work and Pensions claimed that the new Personal Accounts pension plans were “radical” and that they would offer 11 million employees the opportunity to save for their retirements.
A spokesman said: “We are also supporting good quality pension provision through our deregulatory review. We have eased the burden of revaluation and indexation which has the potential to save employers about £250 million per year on average in the longer term.
“We recognise that the current economic climate presents challenges to employers sponsoring defined benefit schemes – that is why the Pension Regulator is working openly with trustees and employers to improve awareness and understanding of the specific approach to protecting members and the PPF, and the flexibility available within the scheme funding framework.”