People 'pay less into pensions' by Finance News Bulletin

Published: 18/12/07

Contributions to pensions have fallen piercingly since the rise of "money purchase" schemes, according to the place of work for National Statistics (ONS)In 2006, 40% of members of such schemes saying less than 8% of their salaries being paid in as sum paymentsThat compared with a combined 20% payment rate for members of customary final-salary schemesIt was also less than the 8% minimum rate suggested for the government's future system of personal accounts

In 2005, the standard company money purchase scheme received total contributions of now 9% of salary"This confirms the employer retreat from pension stipulation," said Nigel Stanley, head of campaigns at the TUC" An awful lot of people at labor today now countenance big cuts in ther living standards when they retire, particularly those who are now too old to construct up polite savings when personal accounts start in 2012"In the past few years, employers have closed most last salary schemes to new joiners and replaced them with cash purchase versions

In these, the eventual retirement fund depends directly on the amount of cash that has been built up through investment, with no direct association to the number of years for which members have been contributing or their final pay at retirementThe analysis by the ONS, in an update to its 2005 publication Pension Trends, confirms that employers disburse in far less to their money purchase schemes than they do their final pay arrangementsWhereas, in 2005, more than three-quarters paid in at least 12% of salaries into their staff's last salary schemes, a similar proportion paid less than 8% into their employees's money purchase fundsThe ONS reveals that these money purchase retirement fund arrangements were worst for staff working in sales or client service

This was far less than the joint payment rate being made to managers and older officials, which stood at a much more generous height of 28% of salaryMany members of money-purchase schemes - 55% in 2005 - chose to disburse in less than 4% of their own salaries as contributionsThat may have been because either they felt they could not afford to do so, or did not consider that higher contributions were worthwhileThere has been a considerable restocking of the finances of schemes, especially the traditional final-salary ones, in the past few years

Taking all types of boss pension schemes together, total contributions rose from £34bn in 1995 to £75bn in 2005, with 80% of that increase being salaried by the employersBruce Wraight, a spokesman for the actuarial firm Watson Wyatt, supposed its own investigate had shown that big employers were starting to pay more cash into their cash purchase schemes"We are looking at distinct increases that employers are causal to the defined contribution (money purchase) schemes," he supposedAnnuity reform Women 1 Women 2 Pension human rights Divorce Work pensions Lump sums Pension praise Frozen pensions Shortfalls Overseas pension Small pensions Tax and retirement funds Pension repair Made simpleState retirement fund With-profits Final salary Money

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