| Pension closures help employers save billions |
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Research done by Brewin Dolphin’s wealth management division led to the startling revelation that employers are saving as much as £4.15bn thanks to rapid closures of the Defined Benefit (DB) schemes.
In fact, according to Christine Farnish, head of the National Association of Pension Funds, Defined Benefit (DB) or final salary pension schemes are not likely to exist beyond 2010. Ms Farnish specified that many organizations were running away from implementing the final salary schemes as a better alternative is now available to the firms in the form of Defined Contribution (DC) scheme.
Brewin Dolphin’s wealth management division divulges the fact that the number of employees under the bracket of final salary pension scheme has descended by two million over the past ten years. The scheme is being replaced another employer friendly pension scheme, defined contribution(DC), which basically leads to smaller contributions from employers and the risk factor is also reduced to a large extent in the absence of long term liabilities.
The DB or Final salary pensions provide the employees with an assured percentage of their remuneration when they take leave of the organization. But many employers are facing huge deficits in their final salary pension schemes and as a result have decided to stop the DB scheme for all new members and in a few instances, even some existing employees are being affected.
All of them are moved to the Defined Contribution (DC) scheme or money purchasing pension plans. These schemes are not as demanding on the organization as the final salary pension plan. But it is the employees who get a raw deal as they provide a smaller amount as pension.
The DC or money purchase plan basically means the working staff deposits certain sum into a fund which is used to buy an annuity- which is basically a monetary product which provides an income - when they retire.
According to Brewin Dolphin’s wealth management report, presently the standard company contribution for the final salary pension schemes is around 15% to 16% as opposed to 7% or 8% for a DC plan. The report further specifies that with more 60% of DB schemes already stopped, there might hardly be anyone retiring on final salary pensions 20 to 30 years down the line.
The BDWM findings come at the back of a study done by HR firm Hewitt Associates which established that presently there are more defined contribution schemes than defined benefit schemes for the first time. Statistics disclose that 32% of companies have employers under the DC scheme with only 26% offering DB schemes to their workforce.
Analyzing all the parameters of the study, the Brewin Dolphin’s wealth management division has warned staffers not to rely too much on their employees and simultaneously look for other investments which will secure their financial position post retirement.
Posted
on : Thu, 14 Jul 2005 18:05 GMT | Pensions News
By : Chris Rowe
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