The world’s biggest companies have conceded that they are failing their staff when it comes to pensions, according to research published today.
The study, by the accounting giant PwC, is being released just days after the City watchdog said the UK’s pension system was “failing” and attacked the market for annuities, which people buy to provide income when they retire, as “disorderly”.
The two reports again illustrate the pensions crisis facing Britain, with an ageing population increasingly set for a retirement in poverty.
The research, which covered 114 of the world’s biggest companies that collectively employ 4.7 million people, showed that only 6 per cent are willing to continue with so-called defined benefit pensions, which guarantee a set income on retirement. But they recognised that the typical alternative of defined contribution schemes, where retirement income is dependent on investment returns, is failing.
While nine in ten companies said it is important they help employees to make “informed decisions” and 83 per cent said they plan to give “more flexibility” to staff, only 11 per cent and 15 per cent respectively think they are currently sufficiently effective at doing this.
Marc Hommel, global pensions leader at PwC, warned companies that “simply providing defined contribution arrangements for employees is not enough – current arrangements are delivering inadequate retirement savings and are not effective for the new world of work”.
He added: “Despite employers almost unanimously agreeing that education, empowerment and flexibility are essential ingredients in retirement benefits in the future, there is still a long way to go before this becomes common practice.”
The research found 83 per cent of multinationals are closing their defined benefit pension plans to new employees and 71 per cent intend to freeze accruals for their existing employees. This reflects the situation in Britain where a guaranteed defined benefit pension is now all but a thing of the past outside the public sector.
Last week a report by the Financial Conduct Authority found that 80 per cent of people failed to get the best deal when buying an annuity and that the industry is closing its doors to those with smaller pension pots. The watchdog is set to conduct a study to assess competition in the market, with possible remedies likely to be published within 12 months.
The Government has sought to address the pensions issue by introducing auto-enrolment into workplace schemes and trailing what it calls a “defined ambition” pension scheme, a hybrid popular in Denmark and the Netherlands. But critics have argued that these are complex and may not do much to alleviate the situation.