Employees pay 5%-7% of earnings for defined-benefit pensions on average compared to 2%-4% for defined contribution, survey reveals
Employee contributions into defined benefit schemes are almost twice those made into defined contribution plans, according to the Government Actuary Department's (GAD) first survey of occupational schemes in five years.
The 2000 survey, which was released last week, shows employee rates to private sector defined-benefit schemes are between 5% and 7% of earnings while in DC schemes the most common employee contribution rates are in the 2%-4% range.
Employer contributions to private sector schemes vary considerably. In contracted-out defined-benefit schemes, the most common rates are between 10% and 15% of earnings, while in defined-contribution schemes most members are in schemes in which employers pay less than 8% of earnings.
The GAD's 11th survey, the last of which was conducted in 1995, also shows around 10% of active employee members of private sector schemes and around 8% in public sector schemes are paying additional voluntary contributions.
In mid-2000, it is estimated there were 5.7 million active employee members of private sector occupational pension schemes and 4.5 million active employee members of public sector occupational pension schemes, a total of 10.2 million.
The total number of active employee members is slightly up in public sector schemes and down in private sector schemes compared to 1995, according to Chris Daykin, Government Actuary.
By mid-2000, total scheme assets were around £860bn, including around £100bn for local authority schemes, which are funded despite being in the public sector, and insured schemes.
Since the 1995 survey there have been a number of changes to the way in which occupational schemes are managed, Daykin said.
The largest schemes tend to have investment sub-committees of their trustee boards while smaller schemes do not. While some of the larger DB schemes now engage in investment practices such as stock lending, investment in derivatives and underwriting new issues of stock, no DC schemes responded they engage in these practices.
Daykin said: 'Many have altered their scheme rules since 1995, with common changes being alterations to eligibility for membership in anticipation of requirements to provide stakeholder pensions from April 2001.
'Other changes required implementation of pensions sharing on divorce legislation and either closing the scheme to new entrants or offering new entrants DC benefits, whereas existing active members continue to build up defined-benefits.'
Over the five years from 1996 to 2000, overall increases in payment into pensions appears to have kept pace with inflation for most members, although large schemes were on average slightly more generous in terms of increases given than small schemes, the report revealed.
In 2000, there were around 6.7 million preserved pension entitlements, 5.2 million in private sector and 1.5 million in public sector schemes.
The GAD survey looked at more than 550 private sector schemes, from a random sample drawn from Opra's Pension Schemes Registry database.
More than 100 public sector schemes responded to the survey.
These schemes covered a wide range of sizes and included frozen schemes, where benefits no longer accrue, and schemes that are in the process of winding up, as well as those that are open to new members.
Schemes were asked to provide financial and membership data from their audited annual reports and accounts as at their scheme year-ends falling in the calendar year 2000.
Daykin said: 'At a later stage, it is hoped to produce a facility whereby researchers with specific queries can interrogate the database of survey responses via the GAD website, with protection of the confidentiality of data on individual schemes.'
Following the publication of the survey, GAD has started a review of its occupational pension scheme surveys, which have been in operation since the mid 1950s. A consultation exercise with users and potential users of the survey began on 8 April 2003.
The consultation paper can be downloaded from the Government Actuary's Department website which is located at: www.gad.gov.uk/pensions/review_of_pension_ scheme_survey.htm
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