Magazine article Management Today

Staff Lose out on Pensions; the Future of Pension Provision Is Uncertain

Magazine article Management Today

Staff Lose out on Pensions; the Future of Pension Provision Is Uncertain

Article excerpt

The future of pension provision is uncertain

The immediate withdrawal of dividend tax credits for pension funds announced in Gordon Brown's first Budget has threatened the old-age provision for employees paying in to money purchase schemes, schemes where contributions but not payouts are defined. Will employers help out with increasing contributions, or will keeping costs down be their main priority?

Abolishing tax credits has effectively cut the value of pension funds' income from UK equities by 20%. Experts predict a fall of up to three quarters of a per cent in the funds' long-term investment return and an 11% reduction in their asset values. To offset the fall, contributions may have to rise between 5% to 25%, costing up to [pounds]50 billion over the next five to 10 years according to the National Association of Pension Funds (NAPF). These estimates may fall if the chancellor gets his predicted improved returns from UK equities, but that is by no means an accepted concept.

Employees paying in to money purchase or defined contribution schemes have full responsibility for bearing any increase in contributions if they think the schemes' funds won't provide an adequate pension. Employer contributions meanwhile can continue at current levels. 'Employees will certainly lose out if they are in money purchase schemes,' says Peter Crutchett, partner in KPMG's pensions consulting practice. 'It's probably too early to see if employers will do anything to help by raising contributions levels.' Employers may be moved to help if they want to keep hold of strategic personnel, says Andrew Black, marketing manager with insurers Standard Life. 'If a company has a key employee and tends to look at remuneration in terms of the overall package, then the employer might decide to increase contributions,' he says.

To date the signs are that companies are more concerned to keep pensions costs down. …

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