People 'pay less into pensions'
Two pensioners discuss pension policy at a government conference
Members of money purchase schemes will be worse off
Contributions to pensions have fallen sharply since the rise of "money purchase" schemes, according to the Office for National Statistics (ONS).
In 2006, 40% of members of such schemes saw less than 8% of their salaries being paid in as total contributions.
That compared with a combined 20% contribution rate for members of traditional final-salary schemes.
It was also less than the 8% minimum rate suggested for the government's proposed system of personal accounts.
In 2005, the average company money purchase scheme received total contributions of just 9% of salary.
Scrooge?
In the past few years, employers have closed most final salary schemes to new joiners and replaced them with money purchase versions.
In these, the eventual pension depends directly on the amount of cash that has been built up through investment, with no direct relationship to the number of years for which members have been contributing or their final salary at retirement.
The analysis by the ONS, in an update to its 2005 publication Pension Trends, confirms that employers pay in far less to their money purchase schemes than they do their final salary arrangements.
Whereas, in 2005, more than three-quarters paid in at least 12% of salaries into their staff's final salary schemes, a similar proportion paid less than 8% into their staff's money purchase funds.
The ONS reveals that these money purchase pension arrangements were worst for staff working in sales or customer service.
Among those, 74% were receiving joint contributions of less than 8% to their pension funds.
This was far less than the joint contribution rate being made to managers and senior officials, which stood at a much more generous level of 28% of salary.
Employee choice
The figures are not simply a reflection of a Scrooge-like attitude by employers.
Many members of money-purchase schemes - 55% in 2005 - chose to pay in less than 4% of their own salaries as contributions.
That may have been because either they felt they could not afford to do so, or did not believe that higher contributions were worthwhile.
However, the picture painted by the ONS figures is not relentlessly bleak.
There has been a considerable restocking of the finances of schemes, especially the traditional final-salary ones, in the past few years.
Taking all types of employer pension schemes together, total contributions rose from £34bn in 1995 to £75bn in 2005, with 80% of that increase being paid by the employers.
SOURCE: BBC NEWS
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