The introduction of personal accounts in 2012 will see at least 300,000 UK employee deprived of their existing pension scheme benefits, warns Fidelity.
Research from Fidelity, based on interviews with 100 finance directors from some of the UK’s largest companies, reveals that 7 per cent intend to close existing schemes and replace them with personal accounts. With 4.4m private sector pension scheme members this equates to 300,000 losing their company pension.
A further 11 per cent of employees will keep existing employees in the company scheme but offer personal accounts to new joiners with considerably lower contribution rates. Fidelity says this means its 300,000 figure is therefore just the tip of the iceberg. With employer contributions of 3 per cent rather than an average of 6 per cent for non-personal accounts, these employees will see retirement pots £55,000 lower for a 25 year old joiner retiring at 65.
Nearly 80 per cent of companies surveyed will find their existing arrangements will not provide them with exemption from having to provide personal accounts in 2012, and 62 per cent had not started planning for them. One in ten had not even heard of personal accounts.
The study also shows that the current landscape of workplace pensions is one of confusion and mixed messages, with companies viewing the principal reason for providing a pension as ‘to allow employees to retire with dignity’, yet more than 50 per cent believe their current DC schemes will not provide sufficient retirement income, despite offering higher contribution rates than personal accounts.
Simon Fraser, president of investment solutions group at Fidelity says: “The government’s original intention for personal accounts was to complement rather than compete with existing provision, but our findings reveal this will not be the case. Everyone is striving for the same goal but action needs to be taken now to mitigate the risk of the pension crisis deepening. The government should show greater flexibility in the personal accounts model to ensure that good schemes are protected.”
News analysis p13