Cost-cutting deepens pensions woe

12 April 2012

THE pensions crisis has been exacerbated by the growing number of companies that are closing generous final-salary schemes to new workers. Research by the Association of Consulting Actuaries (ACA) shows that some 60% of final-salary schemes are closed to newcomers and half of those still open are considering closing them to new members.

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More companies are bringing in defined contributions schemes which depend mostly on money paid in by workers and the performance of the stocks in which the money is invested. ACA said companies are switching to defined contribution to cut costs.

Final-salary schemes take an average contribution of 11% from the employer compared with 6% for defined plans.

The TUC accused bosses of rushing to close the schemes to polish up their image as effective business leaders. The union said a 'herd mentality' was sweeping the boardrooms of Britain, persuading managers to replace final-salary pension plans with cheaper schemes which could leave millions of people facing poverty in old age. Axing the final-salary scheme is mistakenly seen as 'a hallmark of effective management,' the trade union group warned.

'If it is fashionable to close your final-salary scheme, if all your competitors are doing it and if City analysts are questioning why you have not yet done it, then the choice is obvious: abandon your final-salary arrangement or see your share price fall,' the report said.

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