Partner Article

Companies prefer defined contribution pensions

Nearly three-quarters of medium-sized companies favour defined contribution pension schemes over final salary ones, new research has shown this week.

Only 38% of companies with a turnover of between £5 million and £500 million still have a defined benefit pension, such as a final salary scheme, and just 40% of these companies still accept new members into their scheme.

Seven out of 10 firms also said they thought less generous defined contribution schemes were more appropriate for their business, with just 21% preferring defined benefit ones, according to KPMG.

Nearly half of companies with defined benefit schemes said funding regulations and the Pensions Regulator had made it more difficult for them to manage their scheme.

Under final salary schemes, employers state how much a pension will be worth on retirement based on the number of years a member has belonged to a scheme and their pay immediately before they retire.

But the schemes have become more and more expensive to offer in recent years due to increasing life expectancy and investment volatility.

As a result, many companies have switched to defined contribution schemes, under which they only guarantee how much they will pay into the pension, leaving the employee to shoulder all of the risk.

The KPMG survey also found that 54% of the 205 companies questioned agreed that employers had a responsibility to contribute towards pensions.

Linda Bell, pensions partner at KPMG in the UK, said: “It’s encouraging to see that so many medium-sized companies remain committed to employer supported pension provision.

“But it’s disappointing that those defined benefit schemes that do persist, do so in spite of, rather than because of, the regulatory framework.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .