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Personal accounts ring the death knell for over 300,000 employee pensions

11th March 2008 Print
The introduction of Personal Accounts in 2012 will see at least 300,000 UK employees deprived of their existing pension scheme benefits, Fidelity International warns.

In the latest Fidelity International white paper, Corporate Commitment to Pensions Provision, 100 finance directors from some of the UK’s largest companies provide their views on the current state of commitment to workplace pension. Just under 7% said they will close existing schemes and replace them with Personal Accounts – with 4.4 million private sector pension scheme members this equates to 300,000 losing their current company pension.

It would seem that despite the Government’s intention to extend the reach of corporate pension schemes to millions of people in the UK who currently have none, its actions will in fact be responsible for closing existing ‘good’ occupational schemes already in place.

Simon Fraser, President of Investment Solutions Group at Fidelity International: “The Government’s original intention for Personal Accounts was to ‘complement rather than compete’ with existing provision, but our findings reveal that this will not be the case. There is clearly some confusion for companies not knowing what to do next. We recognise that everyone is striving for the same goal but action needs to be taken now to mitigate the risk of the pension crisis deepening”.

The research shows that in addition to the 300,000 people at risk, an additional 11% of employers say that they will keep all existing employees in the company scheme, new joiners will only be offered Personal Accounts – with considerably lower contribution rates. For the thousands of new entrants to the UK workforce each year, and even for those changing jobs, there may be no opportunity to join a defined benefit or defined contribution scheme so our estimated 300,000 figure is just the tip of the iceberg.

Furthermore, Fidelity’s analysis reveals that the current landscape of workplace pensions is one of confusion and mixed messages. For example, companies view the principal reason for providing a pension as “to allow employees to retire with dignity”, yet more than 50% believe their current DC schemes will not provide sufficient retirement income. It is worth noting however that these DC schemes will still provide higher contribution rates than those to be introduced with Personal Accounts.

Nearly 80% of companies surveyed will find their existing arrangements will not provide them with exemption from having to provide Personal Accounts in 2012. More worryingly 62% have not started planning for them and one in ten has not even heard of them.

Simon Fraser continues, “The findings from this white paper show that companies are struggling to keep occupational pensions alive. DB schemes have suffered from the affects of rising costs and too much legislation. Companies offering DC pensions want to provide a healthy level of pension in retirement but know this will not be the case in many instances. Employers see value in offering pension schemes but need to find a way to control risks at the same time. If firms continue to reduce their level of involvement with their employees’ retirement and employees do not start to take responsibility for themselves then the strain faced by the state will be significant. The government should show greater flexibility in the Personal Accounts model to ensure that good quality schemes are protected. ”