53% believe defined benefit pension costs have a negative impact on pay

Bob-Scott-2017

More than half (53%) of employer respondents that operate a defined benefit (DB) pension scheme for their staff feel that the costs associated with this are having a negative impact on pay increases, according to research by the Association of Consulting Actuaries (ACA).

Its first interim report from the ACA pension trends survey, which surveyed 466 employers, also found that 36% of respondents feel that pension tax relief restrictions have led to pressures to revise pay and benefits packages.

The research also found:

  • 52% of respondents with a DB scheme believe restrictions on pension tax relief have caused employees on higher incomes to leave their workplace pension scheme, and 22% think they have caused organisations to reconsider their pension arrangements.
  • 42% of respondents with a DB scheme find that DB costs have a negative impact on contributions into newer schemes, and 80% believe these costs also have a detrimental effect on inter-generational equity.
  • 55% of respondents with a DB scheme feel that further legal restrictions would hasten the closure of more DB schemes to future accrual.
  • 84% of respondents with a DB scheme think the law should be changed so that DB schemes can reduce pension increases if continuing to provide increases at the existing level of scheme rules were to severely and adversely affect the employer.
  • 79% of respondents with a DB scheme support increased punishments for employers who mismanage schemes, and 68% support new criminal offences for directors who deliberately and recklessly put at risk the ability of a scheme to meet its obligations.
  • 32% of respondents with a DB scheme believe that the consolidation of DB schemes is generally a good thing, and that the cost savings from this would be real.
  • 77% of respondents favour keeping the current pension tax relief structure, but with more help targeted on lower incomes, and 13% want to see pensions move to being paid tax-free, with pension tax relief abolished.

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Bob Scott (pictured), chairman at the ACA, said: “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. Legislative and regulatory changes seem unremitting and are continuing to present challenges to sponsors and trustees. [While] a majority of employers fear more legal restrictions will accelerate scheme closures still further, they seem sanguine about further legal restrictions being placed on sponsors and trustees in the upcoming government white paper. That said, the vast majority also expect support in the white paper for some greater flexibility in law to adjust future pension increases if they are in financial difficulty.

“On pension taxation, it is clear the restrictions in reliefs in recent years have had a major impact on pay and benefits strategies at [organisations], with many senior staff opting out of pension arrangements as a result. 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.”