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Warning of falling contributions over DC switch

Retirement incomes could plummet by up to 30 per cent if contribution levels are not strengthened as companies switch from final-salary to defined-contribution pension schemes, claims KPMG.

The company says employees need to boost their contributions to maintain fut-ure benefits as the days of final-salary schemes look numbered.

KPMG&#39s research found that 43 per cent of firms running DC schemes are making contributions of 5 per cent or less compared with typical final-salary contributions of 10 per cent or more. One-third of companies operate a final-salary scheme only, 28 per cent operate a DC scheme and 36 per cent operate both schemes. Forty-four per cent of final-salary schemes are already closed to new entrants.

KPMG found that 88 per cent of companies with final-salary schemes said pension costs had risen in the past few years and two-thirds expect them to keep rising. Accounting standard FRS17 was cited by almost 40 per cent of companies as a key issue.

KPMG estimates that pensions are costing business 15 per cent or more of their payroll and says in some cases liabilities for benefits are app-roaching the value of the company itself.

Pensions partner David Fairs says: “It is vital that emp-loyees make much higher levels of contributions and are aware of the risks inherent in not doing so.”

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