Pension changes prompt surge in employer contributions

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The Independent Online

The amount of money paid into occupational pension schemes by employers rose almost 60 per cent to £12.2bn during the first quarter of the year, as companies rushed to make one-off contributions to their funds before changes to the pensions laws.

The Office of National Statistics said regular employer pension contributions increased by 21 per cent over the past year, as companies reviewed their pension arrangements in light of the new legislation.

However, one-off contributions, to repair final-salary scheme deficits, leapt more than 130 per cent to £5.9bn, as businesses raced to reduce the amount they would have to pay to the Pensions Protection Fund.

The PPF calculates the annual levy a scheme must pay to it, based on the size of their deficit and the risk of the employer becoming insolvent.

Stephen Yeo, at Watson Wyatt, said: "The rise in employer contributions is happening earlier and to a greater extent than many people expected. Companies and trustees are anticipating the new structure for pension funding that will apply in future, and some companies are clearly deciding to pay in much more than the minimum that many commentators expected that they would.

"If the trend continues for the rest of the year, £18bn more will be paid into schemes in 2006 than in 2005, which was a record year."