Over half of UK employers have reported that the associated costs of their defined benefit pension schemes are negatively impacting pay rises
A survey of 466 employers by the Association of Consulting Actuaries (ACA) revealed that, of those operating defined benefit pension schemes, 53 per cent believe the costs associated with their scheme are having a negative impact on pay rises.
Furthermore, 80 per cent reported the costs as having a negative impact on inter-generational equity, while 42 per cent said that defined benefit costs negatively effect contributions into new schemes.
“Our survey findings this year paint a picture of defined benefit schemes where complexities introduced over the years – largely by dint of public policy – have taken their toll,” said ACA chairman, Bob Scott.
“Legislative and regulatory changes seem unremitting and are continuing to present challenges to sponsors and trustees.”
The survey also found that 77 per cent of employers favour retaining the current pension tax relief structure, but with more help targeted on lower incomes.
Just 13 per cent support moving to pensions being paid tax-free, with pension tax relief abolished.
“It is clear the restrictions in reliefs in recent years have had a major impact on pay and benefits strategies at firms, with many senior staff ‘opting out’ of pension arrangements as a result,” Scott continues.
“Beyond doubt this has had an adverse impact on support for schemes within firms, often with those on lower incomes losing out as a result.
“As the last Chancellor found, there seems to be little support for radical tax reform, although employers seem accepting of those on lower incomes getting a larger share of the relief available.”
Ahead of the launch of a white paper by Department for Work and Pensions on the future of defined benefit pension schemes, Scott believes the findings show “the vast majority [of employers] expect support in the white paper for some greater flexibility in law to adjust future pension increases if they are in financial difficulty.”