Flemings, the investment bank, is planning to set up a new subsidiary, Flemings Life, and launch a new range of money purchase pensions schemes, with the investments managed by Flemings. They will be targeted at large and medium-sized companies that offer employees pensions based on final salaries.
A series of roadshows to promote the concept of money purchase pension plans to pension consultants has been arranged for next month.
The new schemes are not intended to replace final salary schemes, and employers will be expected to contribute alongside their employees to company money purchase schemes, unlike most personal portable pension schemes where employers rarely contribute.
Money purchase schemes account for well under 10 per cent of all company pension plans, in contrast to the US where they are the norm. But the trend in the UK is expected to grow rapidly. Many companies are nervous about the prospective cost of financing final salary-related schemes, and complying with the requirements of the new pensions legislation.
Prudent employers are expected to introduce money purchase schemes for younger employees who can then take the accumulated funds away with them whenever they change jobs, and maintain final salary schemes for longer- serving employees.
Some are already said to be considering closing their final salary schemes to new entrants or running final salary and money purchase schemes in parallel, and restricting membership of the final salary scheme to long- serving employees with 10-15 years' service or aged at least 35.
Others are considering a mixture of final salary pensions paying perhaps 1/120 of final salary for each year of service, or half the current average benefit, to underpin a supplementary money purchase scheme.