Majority of employers set to axe defined benefit pensions

The majority (94%) of employers intend to reduce or close their defined benefit (DB) pension schemes, according to research from PricewaterhouseCooper (PWC).

The survey of 179 employers revealed just 6% of organisations expect to retain DB pension schemes in their current form.

The number of organisations that have shut DB schemes to existing employees has more than doubled since last year’s survey, from 14% to 32%.

A further 30% of employers intend to close DB schemes to existing staff, up from 17% in last year’s survey.

The survey also indicated defined contribution (DC) pensions are becoming the prevalent type of workplace pension. Almost all respondents expect to use DC arrangements to comply with auto-enrolment, when it becomes compulsory from 2012.

More than two-thirds (69%) of employers, however, do not understand the cost and administrative impact of auto-enrolment.

A further 70%, meanwhile, believe the higher earners pensions tax will result in lower pensions provision for all employees.

Marc Hommel, pensions partner at PricewaterhouseCoopers, said: “Employers are sounding a repetitive death knell for defined benefit pensions.

“Numerous factors, including the size and volatility of funding costs, and also concerns about the inequality of pensions provision within an employer’s workforce, are accelerating their demise. Companies recognise the value to their businesses and people of providing workplace pensions but not at the risk of jeopardising the business as a whole.”