IFA firm Origen has attacked senior executives in large UK companies for protecting their own final salary pension schemes while closing the same pension arrangements to new staff and denying further accrual of benefits to less senior current employees.
It says despite the continuing decline of final salary pension plans there is little change in defined benefit (DB) arrangements for board members of large corporate firms over the last four years with only a 5% drop in the number of senior executives on DB schemes during the period.
The survey finds 45% of senior executives in large UK companies are protecting their own pensions and are still offered final salary or defined benefit pensions, while 66% of these schemes are closed to new members and to continuing to build benefits for current staff.
The average combined employer/employee contribution to defined contribution pension plans is 11.7%, up from 10.7% last year. But this is still well below that required to provide adequate retirement incomes for many workers, Origen says, as this may only provide a pension of around 15.2% of pre-retirement earnings for a 40 year old new entrant retiring at 65.
The average joint contribution to a defined contribution (DC) scheme is 11.7%, 7% by employer and 4.7% by employee. And while the average employer contribution to a DB scheme is 13.5%, up from 13.2% in 2005, 34% of workers are still not contributing to either form of sponsored pension scheme up 5% from 29% in 2005.
Michelle Cracknell, director of business development at Origen, welcomes the increase in employer contributions to DC schemes but warns employers may be tempted to reduce pensions contributions to the suggested national pensions saving scheme (Npss) level of 3% when it comes into force.
“There is a real fear that contributions to DC pension arrangements will migrate down to the Npss level. Employers face an increase in overall cost because of auto enrolment and hence adopting the Npss contribution levels may help them balance their budget. After the small but nevertheless increase in contributions to DC pensions, it will be a shame if these reduce.”
The research also suggests 65% of employers either have no view or do not support the Npss while 32% of large companies do not support the concept on cost grounds.
Meanwhile since 2001, income protection as a staff benefit has consistently decreased within both large corporate companies and small businesses. Origen claims this trend may have been accelerated over the last five years as forthcoming age discrimination laws could have big cost implications for employers.
Cracknell says an ageing workforce may result in a greater risk to benefits meaning income protection and critical illness cover might become payable and adding the worse the claims experience the higher the cost is likely to become.
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