1m people facing poorer old age
MORE than a million people could find themselves worse off in retirement due to changes in their pension schemes.
Employers have saved themselves about £1.7bn in contributions by closing final-salary pension schemes and offering staff much less attractive defined contribution schemes instead.
According to new research, these schemes typically pay out about 30% less than final-salary schemes and may force people to carry on working beyond 65.
Statistics from Close Wealth Management show that the average company contribution for a defined benefit pension scheme between the beginning of 2001 and the end of 2002 was 13.5% as opposed to 7.81% for a defined contribution plan.
Employers have been closing final-salary schemes over the past few years because of the impact they have on their balance sheets. Accounting rule changes mean companies have to state the cost of these pension funds on their balance sheets.
Added to the fact that people are living much longer, and the cost of sustaining final-salary schemes has become a huge burden both on companies and those employees currently paying into them.
According to Close Wealth Management, defined contribution are much less beneficial with pensions typically 30% lower than those with final-salary schemes. This means many people will have to keep working once they are past the retirement age of 65.
About 60% of all final-salary schemes are now closed to new members – and the number of closures is growing.
Martin Smith, CWM chief executive said this explained why there were three new members of defined contribution schemes for every two new ones of final-salary plans.
'There are currently around one million people working beyond 65 but given the shift to defined contribution schemes and the accompanying lower employer pension contributions that comes with this, this number will surely grow.'
Financial experts say that pension scheme members should always keep an eye on their fund‘s performance and consider transferring their pension before they retire if it does not measure up to industry levels.
But although an increasing number of pension savers want to transfer because they are not confident their occupational schemes will be able to meet their final-salary pension promises it is a decision that almost always requires expert guidance.
