Employers pump billions into ailing pension schemes

Feb 07 2005 by Brian Amble Print This Article

Employers have pumped billions of pounds into their final salary pension schemes over the past year in bid to plug huge deficits.

But according to a survey of 280 schemes by Incomes Data Services' (IDS), the huge increase in the cost of company pensions means that employers will have no choice but to slash pension provision in the future.

The IDS survey found that employer contributions jumped by 50 per cent over the 2003/04 financial year from £5.5bn to £8.2 billion, the highest increase recorded by IDS in eight years of similar surveys.

Almost a third of the additional contributions were "special payments" paid on top of the normal contributions to tackle what IDS described as "yawning deficits" in some company schemes.

These special contributions increased by 98 per cent to £2.5bn, while some firms had increased their overall contributions by 100 per cent or more, the figures revealed.

Only 49 schemes saw a fall in employer contributions, while 13 firms had made made no contributions over the past two years.

And underlining the demise of final salary pensions, IDS found that only 123 of the 284 firms surveyed still offered final salary schemes that were open to new entrants.

Helen Sudell, editor of the IDS Pensions Service, described the rise in contributions as "staggering".

"We have warned before that the widespread closure of final salary schemes to new entrants is just the beginning of a much bigger movement away from paternalistic provision," she said.

"With figures like this there can be little doubt that many employers will have to reduce future benefits at some point for those staff still in these schemes."