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ONS to monitor signs of DC 'levelling down'

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  • ONS to monitor signs of DC 'levelling down'

UK - The Office of National Statistics (ONS) intends to monitor changes in the average level of employee and employer contribution rates to contracted-in defined contribution (DC) schemes, to see if there are signs of "levelling down" ahead of 2012.

In the latest update of Chapter 8 of its Pension Trends series, the ONS highlighted the planned introduction of personal accounts in 2012 which will require a minimum contribution of 8% of banded earnings, and compared this to existing contribution levels in contracted-out DC schemes.

Figures from the 2007 Occupational Pension Schemes Survey (OPSS) showed average total contributions to these schemes with 12 or more members, which it suggests is "broadly comparable" to personal accounts, was 8.6% of gross salary, of which 6% came from the employer and 2.6% from the employee.

The ONS said because the personal accounts contribution rates will be based on a percentage of banded earnings "this makes direct comparison difficult", but it suggested it is possible to calculate contributions on gross salary under the new system to make a broad comparison.

Under these circumstances, the ONS admitted the comparisons suggest employees in these DC occupational pension schemes "contributed less in 2007 than they would to a scheme with minimum contributions under the new system; whereas employers contributed more than twice what they would have to contribute as a minimum under the new system".
 
In response to concerns that the pension reforms could lead to a reduction in employer contributions, the ONS stated "in coming years, Pension Trends will report on any changes in OPSS average employee and employer contribution rates for DC pension schemes that are not contracted out of the additional state pension to see if there are signs of ‘levelling down'".

Meanwhile, the latest figures form the ONS showed the average employee in a private sector DB scheme contributed 4.9% of salary compared to 2.7% of employees in a DC scheme, while eth average employer contribution was 15.6% in DB and just 6.5% in DC.

The report also revealed after five years of "strong growth" total contributions to private pension schemes, including occupational funds, increased by just 2% to £85.2bn in 2007. It attributed the earlier growth to employer contributions to funded occupational schemes, which more than doubled from £16.5bn in 2001 to £38.7bn in 2006, as employers plugged DB deficits.

However while employer contributions dropped to £37bn in 2007 the overall value of contributions continued to increase as contributions to personal and stakeholder pensions increased by 25% between 2005/06 and 2006/07.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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