EMPLOYERS PLAN to significantly reduce the future pension benefits they pay to their staff, with one in five major defined benefit schemes either winding up or reviewing the future of their schemes, according to a survey by PricewaterhouseCoopers (PwC).
The survey of 404 of Ireland’s top 1,000 companies found that 40 per cent of firms with defined benefit pension schemes – the type of scheme that traditionally offers the best retirement benefits to staff – are now considering reducing member benefits by imposing salary freezes, removing pension increases and ceasing future service benefits.
The current recession has placed extreme pressure on the existing pensions system, with sharp falls in investment values pushing previously well-funded defined benefit schemes into large deficits that must now be recovered either through higher contributions or changes to the benefits payable under the scheme.
The survey indicates that around a third of employers who operate defined benefit pension schemes will not be able to take their schemes out of deficit over the next 10 years.
Meanwhile, nearly 10 per cent of employers who operate defined contribution pensions said they had either already decreased the contributions they were paying into the funds or planned to do so.
More than half of the surveyed employers with defined contribution schemes said they contributed 4-7 per cent of employees’ salaries into their pension funds – much lower than the percentage the pensions industry says is necessary for a comfortable retirement.
The collapse of the stock market has also substantially reduced the value of defined contribution funds.
Unlike defined benefit schemes, employees in defined contribution schemes do not have any guarantees to a certain level of pension benefit based on salary and length of service and the resulting retirement incomes from these schemes tends to be lower.
“There is no visible sign of employer contributions to defined contribution schemes being adequate to meet the retirement needs of most of the employees who participate in these schemes and the trends are towards lower and suspended contributions going forward,” said Munro O’Dwyer, a director at PwC’s pensions group.
The survey also suggests that pension trustees plan to step back from the historically high exposure to volatile equity investments in pension funds in favour of more secure assets such as cash and government bonds.
