A survey carried out by EEF has found a dramatic drop in the number of manufacturers offering defined benefit pension schemes.
In 1998 EEF found around half of UK manufacturers offered DB schemes – an agreement whereby an employee’s pension is based on final salary. Eleven years on this figure has dropped to just over a quarter. Firms are increasingly reverting to defined contribution schemes whereby the company adds to the pension based on what the employee pays in themselves.
A third of manufacturers still have a DB scheme in place but of these two-thirds are now closed to new employees and one in eight have closed for existing members.
David Yeandle, EEF’s head of employment policy, said that defined benefit schemes will become increasingly rare outside of the public sector and that all levels of employees in private firms will see decreasing access to them, despite contentions from some unions who say senior managers are still benefiting from them.
One of the main reasons cited for the closure of DB schemes is the regulation that surrounds them and David Yeandle called for government to maintain its rolling programme of deregulation to save DB schemes which are still in place.
“The deregulation of private pensions is a key part of the Government’s reforms to the UK’s pensions system,” he said. “It is vitally important that all parts of this integrated package of reforms, including improvements to state pensions, auto-enrolment with minimum employee and employer pension contributions and the introduction of the low-cost and portable personal accounts scheme, are now implemented if we are to achieve the objective of encouraging more individuals to save for their retirement.”
The survey also revealed that lower returns on the investments made with pension pot cash are another key consideration for manufacturers removing DB schemes.
EEF’s survey took in 500 manufacturing firms in the UK and was carried out in conjunction with CPH Consulting.