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&#39Employers using pension switch to cut contributions&#39

Employers are using the switch from final-salary to money-purchase schemes

as an excuse to cut contributions, leaving employees with on average at

least a third less income in retirement, a new survey shows.

The survey of 272 employer schemes was carried out by consultants Union

Pension Services for the GMB union and found that employers often use a

switch as a way to cut funding, meaning benefits from money-purchase

schemes are significantly lower than those in final-salary schemes.

The survey ranks pension schemes on the basis of pension benefits they

provide. The best final-salary scheme, offered by BP, gives benefits of 124

per cent of the survey&#39s norm scheme, which returns two-thirds of final

salary after 40 years service.

The worst scheme, a moneypurchase scheme offered by Kingfisher, will give

benefits of only 25 per cent of the survey&#39s norm scheme.

Asda&#39s final-salary scheme offers 105 per cent of the survey norm while its

money-purchase option returns only 34 per cent although it requires a lower

employee contribution.

Union Pension Services actuary Bryn Davies says: “Many employers remain

committed to final-salary schemes. But if they switch to a moneypurchase

basis, most take the opportunity to cut back on the value of their

employees&#39 pension benefits.”

TUC investment officer Tom Powdrill says: “Almost without fail, when

employers change schemes, they cut the amount they pay in. Even though

there are good theoretical arguments for definedcontribution schemes,

making the individual shoulder all of the investment risk is not fair.”

Laird Financial Planning senior partner Steve Laird says: “In fairness to

the companies, you can see why they are not keen to keep paying into these

schemes – they are an open-ended cheque.”

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