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New research shows continuing move to DC schemes

Employers are paying an average of 6.9 per cent of employee pay into DC schemes for new employees, according to Towers Perrin.

This compares to an average cost of between fifteen and twenty percent for DB schemes, saving employers approximately two thirds of pension cost. Employees pay an average of 4.5 per cent into DC schemes.

The Towers Perrin ‘UK Corporate Pensions Survey 2006’ which surveyed 170
companies highlights the continuing trend to DC.

Of the companies surveyed just one fifth offer DB to new hires and one third of those plan to stop offering DB to new hires in the next two years. This compares to more than two thirds of companies which offered DB just four years ago.

The survey also shows that half of large UK companies now expect to make
significant changes to pension arrangements provided to existing employees
in the next three years. Pensions legislation and reform, financial
pressures and accounting standards are the top three most important issues
driving company retirement plan changes.

Looking over the next two years FTSE 350 companies identified talent
management rising up the corporate agenda of pension plan change drivers.
Nearly two thirds cited company’s pension schemes as important in
attracting key staff with 50 per cent linking pension to improved retention of new employees. Of the companies who are planning to change their corporate
pensions in the next three years, one fifth said they will increase
employer DC contributions. The survey supports the drive to make DC more
attractive to employees with 40 per cent of employers prepared to pay more than 9 per cent of pensionable salary.

Towers Perrin principal Mark Duke says: “The future of corporate pensions in the UK is undoubtedly DC. The cost savings are clear. The
challenge going forward is to make DC work well for employees. “

“The remarkable pace of change to corporate pension schemes is set to
continue. Over the next few years we will see companies lowering the value of DB commitments, increasing employee contributions, replacing employee contributions with salary sacrifice and changes to retirement ages.”


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