Half of firms say pensions are inadequate

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More than half of the UK's finance directors have conceded that their companies' defined contribution pension schemes are not generous enough to provide their staff with an adequate income in retirement.

According to research published by the fund manager Fidelity International, some 54 per cent of finance directors conceded that their pensions were insufficient to provide a good standard of living in retirement.

When deciding how much to contribute to their employees' pensions, the most important influence was what their competitors offered staff, while one in four companies said its contribution rate was as much as it could afford.

The report pinpoints the worst sectors for pension provision, highlighting IT companies as those who spend the least per head on employees' retirement savings. Although the retail sector has some of the most generous final-salary schemes still in operation, these are now closed to new members. In contrast, the defined contribution schemes which have replaced them are among the least generous.

The capital goods and utility sectors were also highlighted as providing poor contributory pensions, with staff and company contributions on average totalling less than 10 per cent of salary. In the best final-salary schemes, employers and staff contribute more than 25 per cent of salary.

"Finance directors are in the invidious position of knowingly providing many of their employees with an inadequate pension," said Simon Fraser, the president of institutional business at Fidelity. "This may reflect the burden of resolving the defined benefit deficit for so many companies.

"Against this backdrop, one might expect finance directors to be rushing for the exit - but they're not. Employers see value in offering pension schemes, but there is a fine balance - they need to find a way to offset their defined benefit scheme legacies by controlling costs and reducing risks - which many are doing with the increasing use of contract based plans."

Dr Ros Altmann, a former government pensions adviser, said she believed as many as 80 per cent of people were not saving enough for their retirement.