More than half of UK employers say the costs associated with their defined benefit pension plans are having a negative impact on salary increases, according to an interim report from the Association of Consulting Actuaries (ACA).
The findings in the first interim report of the 2017 ACA Pension Trends Survey, which was conducted over the summer and received responses from 466 employers, showed that 53% say the costs associated with their defined benefit schemes are having a negative impact on pay increases, with 80% saying their cost was also having a negative impact on inter-generational equity.
According to the interim report, 42% say defined benefit costs are also having a negative impact on contributions into newer pension plans. Additionally, 84% of employers say the law should be changed so that defined benefit plans can reduce pension increases if continuing to provide increases at the current level will severely and adversely affect the employer.
“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.”
Scott said the report’s findings pointed to the need for both caution and courage in further proposed reforms of the defined benefit pensions regime. He said the findings also reiterated that there was still no appetite among employers for a radical restructuring of pension taxes.
“On pension taxation, 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,” said Scott. “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.”
Key findings in the interim report include:
- 32% of employers feel consolidation of defined benefit plans is “generally a good thing” and that cost savings would be real. However, many respondents remain uncertain on the pros and cons of consolidation.
- 79% of employers support increased punishments for those caught mismanaging plans, while 68% support new criminal offenses for directors who “deliberately and recklessly” put at risk the ability of a plan to meet its obligations.
- 77% of employers favor retaining the current pension tax relief structure, but with more help targeted on lower incomes.
- Just 13% support moving to pensions being paid tax-free, with pension tax relief abolished.
- 52% of employers say restrictions on pension tax relief have caused those with higher incomes to leave their firm’s plan.
Tags: Association of Consulting Actuaries, Defined Benefit Plan, Pension, UK