Employers ‘concerned’ about Pensions Act

Employers are expressing growing concern about the impact that the 2004 Pensions Act will have on pensions provision, a survey has revealed.

The 2005 Pension Trends Survey, by the Association of Consulting Actuaries, surveyed 392 firms and found that nearly two thirds (62%) believed that the Act would reduce occupational pension provision. 82% of those surveyed also believed that the Act would add to the cost of running a pension scheme.

The report also found 89% of defined benefit schemes were in deficit, equating to a pensions ‘black hole’ of over £130 billion. The ACA found that although contributions had increased, on average, from 15.8% in 2002 to 22% today, employer contributions had risen more than those made by employees – by 5% for employers, compared to 1.2% for employees.

The ACA said that the increase in contributions was, almost without exception, going towards reducing scheme benefits, rather than funding benefit improvements.

Commenting on the survey, ACA Chairman Adrian Waddingham said: “Our survey has shown the immense efforts being made by many firms to meet the cost of pensions’ by way of larger contributions –costs that have increased far beyond what was expected when they set up their schemes.

“Increasingly, we are worried that the delayed Scheme Funding regulations may place further harsh funding pressures on employers, thereby speeding up scheme closures.

“The thinking behind tough new regulations may be well-meaning, but this short-term approach can only damage ongoing pension provision and undermine employers’ desire to offer good schemes.

“For the public’s sake, the government simply cannot afford to make any further mistakes in its approach to pensions.”

The ACA made a number of recommendations to improve both state and private pensions. This included the introduction of a higher state pension, with a rise in the state retirement age to help fund it.

(KMcA)