DC is preferred vehicle for UK auto-enrolment, says PwC

UK - Most employers expect to use defined contribution (DC) schemes to comply with auto-enrolment legislation from 2012, as more than one in 10 intend to reduce or close their existing defined benefit (DB) schemes, a study from PricewaterhouseCoopers (PwC) has claimed.

Figures from PwC's latest pension survey of 179 employers, including 38 FTSE 100 companies, showed just 6% of respondents intended to retain their DB schemes in their current form.

Further, the number of companies that have shut their final-salary schemes to existing employees more than doubled, from 14% in 2009 to 32%.

The survey found almost all employers expected to use a DC scheme to comply with their legal duties from 2012, with 69% of respondents not yet fully understanding the cost and other implications of auto-enrolment on their business.

Marc Hommel, pensions partner at PwC, said the cost to employers could eventually be "up to £1,000 a year" per affected individual.

"Retail, leisure and construction sectors will be particularly hard hit, where currently up to 90% of employees do not have pensions provision," he said.

"This is a pressing issue for those employers who need to plan for this financial outlay, and who risk financial penalties and reputational risk for failure to comply."

Other findings from the survey showed the number of companies dealing with legacy pensions through enhanced transfer values increased from 4% last year to 8%, while 53% of respondents intend to offer enhanced transfers in the future.

This is despite recent comments from the Pensions Regulator (TPR) that, in the case of cash-enhanced transfer values, trustees of DB schemes should start from the position that it is not necessarily in the members' best interests. (See earlier IPE articles: TPR accused of 'scaremongering' over enhanced transfers and Trustees need to prepare covenant arrangements, says UK Pensions Regulator)

However, Hommel said: "When offering deferred and current pensioners these choices, it is essential employers and trustees make sure the individuals concerned are put in a position where they can make properly informed, non-pressurised decisions."

Adherence to regulatory guidance, excellent communication, comprehensive information and access to highly qualified independent advice are all essential to this purpose, he added.