Average salary schemes could lose out to DC

NETHERLANDS - Pension provider Centraal Beheer Achmea and consultancy Mercer claim average salary arrangements could lose their attraction to employers after the demise of final salary schemes and pave the way for the growth of defined contribution schemes.

A joint survey of over 1,000 employers suggests companies will not only switch to collective DC pension schemes in the future, but also increasingly move towards individual pension arrangements for as international companies' seek to harmonise their schemes and new companies are established.

The study conducted by the two firms into labour conditions focused on the tightening labour market, caused by population ageing.

Within this investigation, Centraal Beheer and Mercer found over 7% of the companies feel under pressure to reduce costs - in part caused by rising life expectancy - by raising employees' pension contributions.

Shifting to DC arrangements is being considered by 7% companies, while 6.7% said they were thinking of adjusting the 'franchise' - the part of the salary over which individuals do not build up a pension and do not pay contributions.

So far, mainly companies with a large proportion of older workers have increased contributions and franchises, according to the study.

Companies with many younger employees have often sought costs reduction by lowering the build-up percentage of the pension scheme as well raising the retirement age, researchers revealed, adding larger companies in particular have limited their indexation.

"The pending indexation label, and subsequent requirement of extra financial buffers from pension funds by regulator De Nederlandsche Bank, will probably make the indexation ambition a crucial factor for companies," the firms pointed out.

According to Centraal Beheer and Achmea, almost 50% of the surveyed employers are sympathetic to the idea of a basic pension, to be topped up by an additional and flexible scheme which is to be agreed in a central labour agreement (CAO).

Researchers also found 40% of the companies have responded to international accounting standards IAS19 by limiting their pension liabilities, while 18% have shifted to a DC scheme.

Only a limited percentage of companies have indicated they are not considering further changes, they added.

The pressure of increased supervision and accounting rules will force many smaller schemes which are not affiliated with an industry-wide pension fund to contract out their pension schemes to a large provider, or to the pending general pension institution (API), the study suggested.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com