| Employers warned of poverty pensions risk |
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| Monday, 10 December 2007 | |
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Future generations retiring on company pensions alone may, in many cases, retire on ‘poverty incomes’.
PricewaterhouseCoopers LLP says in its annual review of UK pay trends, Executive Compensation: Review of the Year 2007 that increasing levels of incentives have been accompanied by a marked decline in the number of defined benefit (DB) pension schemes. Only in upper quartile performing companies does the wealth created through higher long term incentives offset the loss of a final salary pension. The Trades Union Conference (TUC) recently claimed that the ‘average executive’ retires with a pension pot worth £3 million, enough to pay a pension of £193,000. This is the golden generation of executives who have benefited from both final salary pensions and higher incentive levels. The future does not look as financially comfortable for many executives. Risks for corporate reputations For many regular employees the changes are more serious. Under new arrangements the combined employee and employer contribution is often barely more than 10 per cent of salary. The employee will be lucky to retire on half as much as they would have in a final salary pension. Tom Gosling, partner, PricewaterhouseCoopers LLP, said that the risks for corporate reputations and succession planning are severe. He believes that large numbers of employees retiring on poverty incomes will not be an acceptable risk for a responsible employer’s reputation. “There are also implications for succession planning where attempts to freshen up the talent pool will be frustrated by employees who cannot afford to retire and who now receive greater protection through age discrimination legislation,” Gosling adds. The report explains how companies can reduce the risks. Providing financial planning education to employees is key step, as is making employees’ pensions work better together with arrangements such as save as you earn (SAYE) and other company share plans. Gosling said that companies may be under the impression that transferring the risks to employees has removed the pensions headache. "Many will be in for a much worse hangover in a decade’s time if they do not address this now,” he warns. Related articles
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