UK switch to DC costs staff E2.3bn - report
UK – The switch from defined benefit to defined contribution schemes has cost employees up to 1.6 billion pounds (2.3 billion euros) in pensions contributions a year, according to Close Wealth Management.
According to research from Close, up to 900,000 people have seen their company DB schemes close and have been offered DC plans instead, which have cost them up to 1.6 billion pounds a year in pension contributions.
Close says that many people who see their DB plans closed and are offered a DC scheme are unaware that the pension contributions they receive from their employers will fall by an average of around 50%. This has a huge impact on the level of income they can expect in retirement and if they can afford to, they will need to save and invest more to make up for this shortfall.
Says Martin Smith, chief executive of Close Wealth Management: “The average company contribution level for a DB scheme is 14.83% compared to 7.41% for a DC plan.”
According to the research more than seven out of 10 defined benefit schemes are now closed to new entrants as employers seek to tackle the issue of pension fund deficits.
Explains Smith: “New accounting rules have dramatically highlighted the issue of occupational pension deficits, which in many cases has contributed to a fall in the share price of quoted companies. FTSE 100 companies currently have a deficit of around 55 billion pounds (79 billion euros) in their defined benefit pension plans, up from 25 billion pounds (36 billion euros) in 2002.”
“To help alleviate this problem, many employers are closing their DB schemes and are offering their staff defined contribution plans instead. These have no long term liabilities for employers but they mean lower contributions for employees,” adds Smith.
Close Wealth Management is part of Close Brothers Group plc. The company offers to provide a retirement health check for people with liquid assets of 50,000 pounds (72,042 euros) or more.