Staff risk low pensions under new schemes
Many UK employees face 'lean retirements' if they continue to make low contributions to their defined contribution schemes, research by KPMG Pensions has revealed.
Combined contributions from company and staff to defined pension contribution schemes currently total 10% or less of an employees salary – with nearly half of companies who offer such a policy adding less than 5% to the employees pot.
This means that pension income could be as much as one-third lower than under final salary schemes.
David Fairs, partner at KPMG Pensions, said it was vital that employees made ‘much higher levels of contributions and are aware of the risks in not doing so’.
Fairs said more and more companies were closing down their final salary schemes and switching to defined contribution schemes because they made ‘good business sense’.
A major factor in companies choosing defined contributions schemes was an attempt to keep costs down, with the controversial new accounting standard FRS17 seen as a key issue, KPMG found.
Fairs added: ‘The volatility of costs and the potential impact of FRS17 mean that the days of the final salary pension scheme look numbered.’