Private sector employers are set to embark on a new round of pension cost cutting, a report published today reveals, axing final salary schemes of thousands of staff while also pursuing other strategies for getting rid of liabilities related to retirement benefits.
A study of employers conducted by PricewaterhouseCoopers reveals businesses are planning a second wave of pension scheme closures as they try to cut costs, while also looking at other longer-term savings.
The survey shows that 32 per cent of companies have now shut their guaranteed final salary schemes to all staff, with no more benefits accruing, up from 14 per cent last year. Another 30 per cent plan to do so in the future. Just 6 per cent of employers say they will keep their defined benefit plans in their current form.
Almost all large companies have already closed final salary schemes to new joiners, but PwC's report – which surveyed 179 large employers, including 38 members of the FTSE 100 Index and 34 companies with over 10,000 staff – suggests that most existing members of such plans cannot expect to continue building up guaranteed pension rights for much longer.
There is also growing evidence that after limiting the value of pension promises they are making to staff going forward, some employers are now keen to revisit the benefits they have offered in the past. While only 8 per cent of employers have already offered former staff enhanced deals if they agree to transfer their pension entitlements elsewhere, 53 per cent are now considering following suit. A third of employers are even considering offering their pensioners some sort of deal to persuade them to give up the right to future pension increases.
Marc Hommel, a pensions partner at PwC, said the report reflected ongoing concern among large employers about the cost of occupational pension schemes, particularly final salary plans, where members' retirement benefits are guaranteed to be worth fixed proportions of their pay while still in work.
"Employers are sounding a repetitive death knell for defined benefit pensions – numerous factors, including the size and volatility of funding costs, and also concerns about the inequality of pension provision within an employer's workforce are accelerating their demise," Mr Hommel said. "Companies recognise the value to their businesses of providing workplace pensions but not at the risk of jeopardising their businesses."
PwC also warned that many companies had not yet faced up to the costs of auto-enrolment, the system to be introduced in 2012 that will require all employers to sign their staff up to an occupational pension scheme unless they specifically opt out.
"Some UK employers face millions of pounds of additional costs from 2012, when they will have to automatically enrol employees into a pension scheme and ensure minimum contributions are paid," Mr Hommel added. "Retail, leisure and construction sectors will be particularly hard hit, where currently up to 90 per cent of employees do not have pension provision."
There have been some calls in the private sector for a delay to the launch of auto-enrolment in the wake of the recession, though the Government has so far refused to consider doing so.Reuse content